Home Loans and the National Credit Act

The National Credit Act 34 of 2005 (NCA), provides in section 3 that its purposes are ‘to promote and advance the social and economic welfare of South Africans, promote a fair, transparent, competitive, sustainable, responsible, efficient, effective and accessible credit market and industry, and to protect consumers.’

Home Loans Before the NCA came into effect, the credit industry had largely been regulated by the Usury Act 73 of 1968 as well as the Credit Agreements Act 75 of 1980.

With specific reference to the last part on the purposes of the NCA as mentioned above, it is evident that there is a deliberate aim by the NCA to protect credit consumers.

What Constitutes Reckless Credit?

Key to the protection as aforesaid is the prevention of reckless credit. While section 89, 90 and 91 are important in this regard, it is particularly sections 80 and 81 that we will focus on in this brief discussion.

80. (1) A credit agreement is reckless if, at the time that the agreement was made, or at the time when the amount approved in terms of the agreement is increased, other than an increase in terms of section 119(4)-

(a) the credit provider failed to conduct an assessment as required by section 81(2), irrespective of what the outcome of such an assessment might have concluded at the time; or

(b) the credit provider, having conducted an assessment as required by section 81(2), entered into the credit agreement with the consumer despite the fact that the preponderance of information available to the credit provider indicated that-

(i) the consumer did not generally understand or appreciate the consumer’s risks, costs or obligations under the proposed credit agreement; or

(ii) entering into that credit agreement would make the consumer overindebted.

National Credit Amendment Act 19 of 2014

The assessment as referred to in section 80 above, is one to determine if the consumer applying for credit is creditworthy. In the past, there was no provision as to how this assessment ought to be conducted but subject to the National Credit Amendment Act 19 of 2014 (amendment act), credit providers who are required to conduct the assessment, now have a basic guideline as to how this assessment ought to be conducted particularly with regard to the information required.

Guidelines of Affordability Assessment

Regulation 23A was inserted which provides for a general guideline/criterion of the affordability assessment. The mechanisms and procedures that credit providers use must not be inconsistent with the guideline provided in Regulation 23A.

The guideline covers the following aspects;

1. Application i.e. whether the regulations are applicable or not;
2. Existing Financial Means and Prospects;
3. Existing Financial Obligations;
4. Debt Re-Payment History;
5. Avoiding Double Counting;
6. Credit Provider Disclosures;
7. Outcome of Affordability Assessment.

In the calculation of the consumer’s financial means, prospects and obligations, the credit provider must take into consideration the Minimum Expense Norms as provided in the Regulation (23A).

The methodology is that upon ascertaining the gross income, statutory deductions and minimum living expenses must be deducted before arriving at net income, which is allocated for debt instalments. Pursuant to the existing debt obligations being taken into account, discretionary income must be calculated to enable the consumer to repay any new debt.

A consumer’s declared minimum expense norm that is lower than the amount reflected in the Minimum Expense Norms Table may be accepted under exceptional circumstances, in the event that the questionnaire in the Schedule is completed by the consumer. This means that the consumer must factually prove that indeed their monthly minimum expenses are actually lower than the threshold reflected on the Minimum Expense Norms Table.

The idea behind this is that, when consumers approach a credit provider, they go to lengths to project a picture that their financial circumstances are in good stead, and sometimes this results in the consumer misrepresenting some facts. In the alternative, the consumer may have to accept the minimum expense norm amount as set out in the table of Regulation 23A.

Therefore, in this way the credit provider may adjust the minimum expense amount other than that presented by the consumer i.e. using the amount provided on the table over the one declared by the consumer.

Minimum Expense Norms Table

As an example, we shall consider a practical scenario to explain the Minimum Expense Norms Table:

A person who earns R7 000, falls within the R6 250.01 – R25 000.00 bracket on the table, where it is expected that their minimum monthly expenses will be R1 167.88 added to a fraction of the remaining income over the minimum income. Therefore, the amount would be:

R1 167.88 + (R25 000.00 – R1 167.88 x 9%) = R1167.88 + (R23 832.12 x 9%) = R1167.88 + R2144.89 = R3 312.77

As alluded to above, in the event that the person alleges that their expenses are lower than R3312.77 as calculated above, they must complete the questionnaire in the Schedule (of the Regulations) and where the person alleges that the expenses are higher, the credit provider ought to accept such higher amount.

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