In the judgement, the court ordered that regulation 23A(4) of the regulations made by the Minister of Trade and Industry under s82(2) read together with s171(1) of the National Credit Act 34 of 2005 be set aside.

Effectively what this means is that there is no longer any need to collect any particular form of documentation proving income when applying for credit, explained director at Norton Rose Fulbright, Lauren Fine, who represented the retailers in the matter.

The retailers argued that the regulation was unreasonable and unfairly discriminates against the section of the population that largely consists of the poorer and less privileged members of society.

“The court found the retailers’ attack was well founded and illustrated the need for the review by way of an example of a flower seller in Adderley Street who did not have a bank account,” said Fine.

“It found that it was most unlikely that the flower seller would have financial statements, in which circumstances there would be an insurmountable obstacle in obtaining credit in a relatively small amount, even if the flower seller was earning a reasonable amount each month.”

Regulations

In line with this judgement, the Department of Trade and Industry on Friday (5 May), published new guidelines for assessing gross and discretionary incomes when applying for credit in South Africa.

The guidelines notes that a number of regulations have remained unchanged by the judgement and that credit providers are still required to:

• Conduct an affordability assessment and calculate the consumer’s discretionary income;
• Take practicable steps to ensure that a consumer can pay the installments; and
• Use the minimum expense norms table broken down by monthly gross income when calculating the existing financial obligations of consumers.

However, in-line with the judgement, the new guidelines now also expressly separates those who are formally employed and those who are self-employed or employed in the informal sector.

Formally employed

According to the guidelines, the gross income of a consumer who is employed in the formal sector of the economy should still be ascertained by referencing the consumer’s payslip.

“If the consumer has a bank account into which the consumer’s salary is deposited, the consumer’s net income can be ascertained with reference to the consumer’s bank statement,” the guidelines state.

“Living expenses and debt obligations will then be deducted from the consumer’s net income to ascertain the discretionary income. To establish the consistency of the consumer’s income, three months’ bank statements or payslips should be obtained by credit providers.

“For this category of consumers, credit providers can use either payslips or bank statements to calculate the consumers’ discretionary incomes.”

In the case where the a consumer has been employed for less than three months, the guidelines state that the the credit provider should obtain the consumer’s latest payslip at the time of the credit application, or a letter of employment confirmation from the employer detailing the salary and its frequency of payment or a bank statement showing the latest salary deposit.

Self-employed/informally employed

“For consumers who are self-employed, informally employed or consumers that have income other than from formal employment and which is not evidenced by payslips or bank statements, credit providers should use such other verification of the consumer’s income that will provide validation of income sufficient to meet the consumer’s payment obligations in respect of the proposed credit,” the guidelines state.

“The credit provider must submit its affordability assessment models, procedures and mechanism in respect of this category of consumers to the NCR”.

The guidelines provide no further information on exactly what verification of income may be used, however it makes it clear that the affordability assessment models should in effect be no different that if a person was formally employed.