High court ruling could unleash flood of new credit applications

Johannesburg – The removal of a key lending criterium by a court last month is likely to open a flood of credit applications as consumers come under pressure from the tight economic environment, credit bureau TransUnion said on Monday.

In a case brought by leading retailers Truworths, Foschini and Mr Price, the Western Cape High Court last month ruled credit applicants would no longer be required to provide proof of income when applying for credit, as previously required by the National Credit Act.

TransUnion CEO Lee Naik stressed that the ruling does not scrap the entire National Credit Act regulation, which makes provision for responsible lending.

"The entire regulation has not been scrapped, and the onus is still on the lenders to assess the affordability of consumers," he said.

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The retailers brought the case against the minister of trade and industry and the National Credit Regulator, arguing that some of the requirements of the National Credit Act used to assess affordability, such as three months’ bank statements and payslips, discriminated against certain sections of society, particularly the unbanked and the self-employed.

"The judgment will potentially open up the market to the new entrants who were previously prevented by the regulations. As a result, lenders are likely to use that opportunity as they grow their business," said Naik.

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He cautioned the system could be open to abuse by over-indebted consumers, who could take up more debt to boost disposable income.

"We are a highly indebted society - almost 73% of our personal income goes towards servicing debt, while the real income growth is just at about 2%," he said.

South African consumers are experiencing a tough economic climate, following the increase this month from 14% to 15% in value-added tax. Household income has also come under pressure from petrol price hikes.

First National Bank head of retail credit Hannalie Crous said the bank has not changed its requirements for credit extension following the court ruling.

"The bank has noted the judgment by the Western Cape High Court and will continue to monitor the developments on this matter," she said.

 The National Credit Regulator says it will consider appealing the judgment.

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