National Credit Regulator submits changes to affordability assessment regulations

The National Credit Regulator (NCR) has submitted amendments to its affordability assessment regulations to tackle anomalies in the informal economy. Retailers are complaining that the anomalies are clipping millions off their sales.

The affordability assessment regulations, which require credit providers to verify income through three payslips and bank statements before extending credit, were introduced in September 2015.

The Foschini Group (TFG), a clothing retailer, said on Thursday that its R6.7bn retail debtors book did not experience any growth in the six months to September because of these regulations.

"We estimate the negative impact on credit turnover to be in the region of R310m for this period," TFG said on releasing its results for the period.

This came a day after household goods retailer Lewis told the market that the affordability regulations had severely affected its merchandise sales, which rose just 1% to R1.2bn.

On a like-for-like basis, which excludes its newly integrated Beares and Ellerines stores, sales plunged 9.2%.

Lewis relies on credit sales for most of its revenue, with 63.4% of its merchandise sold on credit. The decline in sales contributed to its lowest profits since 2009.

Retailers are the biggest losers from the assessment regulations, experiencing a 32.3% decline in credit extensions during the second quarter, compared with the year before, according to the NCR’s Consumer Credit Market Report.

Three retailers – Mr Price, TFG and Truworths — have taken the regulator to court to challenge the affordability assessment guidelines, claiming most customers are employed in the informal sector and are unable to provide the proof of income needed.

The amendments "address concerns relating to the validation of income of consumers in the informal economy", NCR company secretary Lesiba Mashapa told Business Day.

"The NCR has engaged them to understand the impact of the changes on their business models," says Mashapa.

"Revisions will be made to regulations to limit the unintended consequences, whilst ensuring that the consumer protection perspectives of the changes are not undermined."

But the regulator has not only focused on affordability assessments in a bid to curb abuses in a market where nearly half of SA’s 23.9-million credit-active customers have impaired credit records.

If credit bureau data are anything to go by, many are avoiding payment, with overall inquiries made on credit records falling 6.4% for the first quarter, but inquiries from debt collection agencies rising markedly – 33.5% – during the period.

The NCR also requested all moneylenders, irrespective of the amounts they lend, to register with it by last Friday.

Trade and Industry Minister Rob Davies reviewed the fees and interest rates that lenders can charge, which came into effect in May.