During March 2018, the High Court made an important ruling that has affected the requirements of proof of income when applying for credit in South Africa.
The court case involved retailers Foshini and Mr Price taking the Minister of Trade and Industry and the National Credit Regulator to High Court, arguing that the provisions of regulation 23A(4) (promulgated by the Minister of Trade and Industry) were unreasonable and discriminated against lower-income or less privileged members of society.
The court ordered that the said regulation, read together with section 171(1) of the National Credit Act 34 of 2005, be set aside. The effect of the judgement was that there is no longer a requirement for documentation in any particular form to be collected to prove income when applying for credit, although the credit applicant is still required to provide authentic documentation, for example ID books, to the credit provider.
In reaching its judgement, the court used the example of a flower seller who did not have a bank account and would face an insurmountable obstacle in obtaining credit even in a relatively small amount, even if the flower seller was earning a reasonable monthly income. The court therefore held that such a scenario would frustrate the aim of the National Credit Act which is “to promote the development of a credit market that is accessible to all South Africans and in particular to those which have historically been unable to access credit under sustainable market conditions”.
Following the said case, the Department of Trade and Industry has recently published new guidelines for the assessment of gross and discretionary incomes when applying for credit.
A credit provider is still required to conduct an affordability assessment to calculate the applicant’s discretionary income, to take steps to ensure that the applicant can afford the monthly instalments and to us the minimum expense norms table to break down an applicant’s monthly gross income when calculating the applicant’s existing financial obligations.
However, the new guidelines distinguish between applicants who are formally employed versus those that are self-employed or employed in the informal sector.
Formally employed applicants will still prove their gross income by way of payslips and bank slips whilst self-employed or informally employed applicants will need to provide alternative proof of income to satisfy the affordability assessment.
For quality guidance on your legal matters, contact Goldberg & de Villiers Inc. on (041) – 501 9800.