Summary of Affordability Guidelines

Important Definitions

“Discretionary Income”
means Gross Income less statutory deductions such as, income tax, unemployment insurance fund, maintenance payments and less Necessary Expenses (at a minimum as defined herein); less all other committed payment obligations as disclosed by a consumer including, such as may appear from the applicant’s credit records as held by any Credit Bureau which income is the amount available to fund the proposed credit Instalment;

“Gross Income”
means all income earned without deductions from whatever source;

“Joint Consumers”
means consumers that are co-principal debtors who are jointly and severally liable with regard to the same credit agreement and apply jointly for the credit agreement excluding the surety or a credit guarantor under a credit guarantee;

“Necessary Expenses”
means the consumer’s minimum living expenses including maintenance payments if applicable as determined in accordance with Regulation 23A(9) excluding monthly debt repayment obligations in terms of credit agreements as reflected on the prospective consumer’s credit profile held by a credit bureau;

 

General Requirements

A credit provider must take practicable steps to assess the consumer or joint consumer’s discretionary income to determine whether the consumer has the financial means and prospects to pay the proposed credit instalments.

 

Application of Affordability Guidelines

(a) Current, prospective and joint consumers;

(b) All credit providers; and

(c) All credit agreements to which the NCA applies, subject to Regulation 2.

 

The Guidelines do not apply to:

(a) The consumer is a juristic person and a developmental credit agreement;

(b) A school loan or a student loan;

(c) A public interest credit agreement;

(d) A pawn transaction;

(e) An incidental credit agreement;

(f) An emergency loan;

(g) A temporary increase in the credit limit under a credit facility;

(h) A unilateral credit limit increase in terms of sections 119(1)(c);119(4); and 119(5) of the Act under a credit facility;

(i) A pre-existing credit agreement in terms of Schedule 3 Item 4(2) of the Act;

(j) Any change to a credit agreement and/or any deferral or waiver of an amount under an existing credit agreement in accordance with section 95 of the Act; and

(k) Mortgage credit agreements that qualify for the Finance Linked Subsidy Programs developed by the Department of Human Settlements and credit advanced for housing that falls within the threshold set from time to time.

 

Process to be followed

When conducting the affordability assessment, the credit provider must: –

(a) Calculate the consumer’s discretionary income;

(b) take into account all monthly debt repayment obligations in terms of credit agreements as reflected on the consumer’s credit profile held by a registered credit bureau; and

(c) Take into account maintenance obligations and other necessary expenses.

 

A credit provider must take into account the consumer’s debt repayment history as a consumer under credit agreements, as envisaged in section 81(2)(a) and must ensure that this requirement is performed: –

(a) Within seven (7) business days immediately prior to the initial approval of credit or the increasing of an existing credit limit; and

(b) Within fourteen (14) business days with regards to mortgages.

 

Required Documents:

  1. Three month payslip OR;
  2. Three month bank statements;
  3. Latest three month documentary proof of income if not receiving a salary and if it is a company financial statements where no bank statements exist.

 

Where the consumer’s monthly gross income shows material variance, the average gross income over the period of not less than three (3)pay periods preceding the credit application must be utilised.

 

Other Considerations

  • Consider maintenance obligations and other necessary expenses
  • Ensure that consolidation loans are actually used to settle existing credit agreements

 

Minimum Expense Norms

The credit provider must utilise the minimum expense norms table below, broken down by monthly gross income when calculating the existing financial obligations of consumers. The methodology in the table requires for:

(a) Credit providers to ascertain gross income;

(b) Statutory deductions and minimum living expenses to be deducted to arrive at a net income, which must be allocated for payment of debt instalments; and

(c)When existing debt obligations are taken into account, the credit provider must calculate discretionary income to enable the consumer to satisfy any new debt.

Example: If a consumer earns R6250 per month. They cannot declare less than R1167.80 per month in living expenses. This is R800 + 6.75% OF R5450 (R6250 – R800) = R1167.87 (R800 + 367.87)

 

Minimum Maximum Minimum Monthly Fixed Factor Monthly Fixed Factor =% of income above band minimum
R0 R800 R0.0 100%
R800.01 R6,250 R800.0 6.75%
R6,250.01 R25,000.00 R1,167.88 9.0%
R25.000.01 R50,000.00 R2,855.38 8.20%
R50.000.01 Unlimited R4,905.38 6.75%

 

Exceptions

The credit provider may however on an exceptional basis, where justified, accept the consumer’s declared minimum expenses which are lower than those set out in table 1 provided the questionnaire set out in the Schedule, as issued from time to time, is completed by the consumer or joint consumers.

 

Outcome of Affordability Assessment & Grievance Procedure

  • A consumer who is aggrieved by the outcome of affordability assessment may at any time lodge a complaint in terms of section 134 or 136 with the credit provider for dispute resolution.
  • The credit provider must attempt to resolve the complaint within fourteen (14) business days after receiving notification of the complaint from the Ombud in terms of section 134.
  • If the grievance is not addressed by the credit provider within the period referred to in sub-regulation 10A (15) above, the consumer can approach the National Credit Regulator.
  • (The National Credit Regulator must resolve the complaint within seven (7) business days.