Codes of Conduct May Increase Costs
1 November 2013Routledge Modise
Codes of Conduct and Assessment Guidelines
The National Credit Regulator (NCR) has for some time expressed its concerns regarding the method used by credit providers to assess consumers' ability to afford credit (affordability assessments). In line with these concerns, in May, the NCR issued the Credit Industry Code of Conduct to Combat Over-Indebtedness in terms of section 48(1)(b) of the National Credit Act (Code of Conduct).
One of the more salient points of the Code of Conduct is the requirement to "collaborate with registered credit bureaux to ensure additional datasets are made available to credit bureaux for use by credit providers in affordability assessments". Briefly stated, the revised Code of Conduct will impose upon credit providers increased responsibility and will augment the information collected by the credit bureaux.
In addition, the Code of Conduct authorises the NCR to issue guidelines in respect of the conduct of affordability assessments.
In June 2013, these Guidelines were published for public comment and proposed that:
- Applicants for credit must prove their claimed discretionary income when it is above the norm for a person with their gross income (where such norms must be determined as a percentage of gross income hand).
- Credit providers must consider all of the applicant's income, expenses and debt repayments when doing an affordability assessment.
- Credit providers must refrain from lending to the maximum of consumers' discretionary income and must leave a margin of at least 25% for adverse changes in the economy or in the circumstances of the consumer.
- Credit providers are required to use the applicants' current credit information as stored with one or more credit bureaux.
- Credit providers must process applications for credit within seven days of accessing an applicant's credit information from the various credit bureaux.
- Credit providers must share credit application information from the various credit bureaux to allow for better affordability assessments to be made by other credit providers and to reduce credit application fraud.
This is a departure from the current legislative regime in terms of s82 of the NCA, which provides that the mechanisms in respect of the affordability assessments are at the discretion of the credit provider with an option for the NCR to contest a particular credit provider's affordability assessment before the National Credit Tribunal.
National Credit Amendment Bill
The National Credit Act Amendment Bill was gazetted on 29 May and, among other things, appears to seek to make the Code of Conduct mandatory rather than optional. It does this by including (in the amendment to s48) compliance with the Guidelines as one of the criteria to establish whether a credit provider's registration will be approved. This is in contradistinction to the initial view that the provisions of the NCA will take precedence over the Code of Conduct.
Implementation of the proposed amendments will have a material effect, both on the costs involved and the processes used by credit providers in assessing potential borrowers, as well as the use and accuracy of credit data in the credit bureaux space.