Access to credit is a critical tool for financial inclusion. According to the 2017 TransUnion SA Consumer Credit Index (CCI), which is an indicator of consumer credit health, of the estimated 33-million economically active South Africans, only 25-million have had access to credit facilities. The remaining 8-million are in the informal economy with no monthly payslips. Retailers will probably target those people as they jostle to dish out credit.

Last week the High Court in Johannesburg ruled against the minister of trade and industry and the National Credit Regulator (NCR) by setting aside parts of the National Credit Act. It removed the income-verification requirements entirely from the regulations even for consumers who can produce payslips and bank statements. However, the rest of the act remains unchanged.

The matter was brought to court by JSE-listed retailers Truworths, TFG and Mr Price, who argued that the regulation, which was introduced in 2015 as a way of improving lending prudency, was unreasonable and unfairly discriminated against the poorer and less privileged people in society. The unintended consequence of this was that those working in the informal sectors were unable to qualify for responsible credit as a result of these requirements.

The NCR has urged credit providers to continue to apply the income verification standards set by the regulations to protect themselves and consumers from reckless lending and borrowing.

"Credit providers are reminded that section 81(2) of the National Credit Act requires them to take reasonable steps to assess consumers’ financial means before granting them credit. They should request consumers to produce proof of income," said Mashaba.

Credit applicants are still required to provide authentic documentation at the request of the credit provider.

TFG director of financial services Jane Fisher said while no further litigation was planned with regard to the matter, the group would continue to conduct fair and objective assessments of potential customers.

"Even prior to the introduction of these affordability regulations in September 2015, TFG has always applied a rigorous credit-scoring process in order to assess whether a customer should be granted credit as a responsible credit provider, with credit-lending policies which are in line with international best practice," Fischer said.

Lesiba Mashaba, the NCR’s company secretary, said the purpose of the regulation that was set aside was to enable credit providers to lend to consumers on the basis of validated income.

"It was an important tool in the fight against reckless lending and borrowing," said Mashaba, adding that the NCR was not happy with the judgment for setting aside the entire regulation 23A (4), even for consumers who were formally employed and were able to produce payslips and bank statements.

Although banks regularly engage with their consumers to implement debt restructuring measures, SA is a highly indebted country with more than 72% of household income being channelled towards servicing debt.

Of the 53.5-million consumer accounts measured, 839,000 were in arrears. According to the Consumer Bureau Market Report for the first quarter of 2017, there are 24.7-million credit-active consumers in SA.

Of these, 39.3% have impaired credit records. However, the number of people with impaired records has dropped since 2015, when the affordability regulations were introduced, to levels last seen during the 2008 financial crisis.

The latest court ruling compels lenders to use alternative means to reward or deny consumers access to credit. But TransUnion CEO Lee Naik said other methods included the use of artificial intelligence and trended data to determine whether a consumer would be able to service their debt if granted access to credit.

Trended data examines the spending and financial habits of individual consumers to determine their unique financial position.

"Nonfinancial data such as where a person is employed, where they study and their mobile behaviours can be traced to determine whether a consumer can afford to repay debt," Naik said.

He said these methods were often used in countries such as Columbia and India, where a large portion of the population was involved in the informal economy.

"This highlights the need for consumers to educate themselves," Naik said. "An informed consumer is one that is likely to calculate and repay their debt."