Understanding Affordability Assessment Regulations

1. Affordability Assessment Regulations Compliance Department Mmabatho Senyarelo

2. Agenda • Background to the Affordability Assessment Regulations • Application and Exclusions • Principles of the Regulations

3. In 2012 the NCR commissioned a study by Compliance & Risk Resources (Pty) Ltd into the growth in unsecured personal loans; • The study identified “limited regulatory specifications or industry guidance…of affordability assessments”; • The study recommended “high level principle based guidance to credit providers”; • The first draft of the affordability guidelines was published for comments in June 2013; • The final draft guidelines were completed with industry participation and limited impact assessments; • The draft regulations were published for public comments by the dti in July 2014; • The final regulations were published in March 2015 and came into effect on the 15th September 2015 Background to the Regulations

4. Application & Exclusions The regulations apply to: • Current, prospective and joint consumers; • All credit providers; and • All credit agreements to which the Act applies, subject to Regulation 2.

5. Exclusions The Regulations exclude loans to juristic persons and the following: • Developmental credit; • School or student loan; • Public interest credit agreement; • Pawn transaction; • Incidental credit agreement; • Emergency loan; • Temporary increase of a credit limit under a credit facility; • Any change to an agreement/deferral or waiver as per section 95; • FLISP Subsidy Linked Mortgages and credit for housing that falls within the thresholds set from time to time

6. Principles of the regulations Existing financial means and prospects: • Credit provider must take practical steps to assess “discretionary income” • Take practical steps to validate gross income (a) Salaried consumers (i) latest three (3) payslips; or (ii) bank statements showing at latest three (3) salary deposits; (b) Non-salaried consumers (i) latest three (3) documented proof of income; (ii) latest three (3) months bank statements; (c) Self employed, informally employed or where no payslip or proof of income as contemplated in (a) or (b) above (i) latest three (3) months bank statements; (ii) latest financial statements. • .

7. Principles of the regulations… continued Existing financial means and prospects: • Where the income shows material variance the average gross income for at least three (3) pay periods must be used. • The consumer must: • disclose accurately to the credit provider all financial obligations; • provide authentic documentation.

8. Principles of the regulations… continued Existing financial obligations • Credit provider must calculate the consumer’s existing financial means, prospects and obligations as envisaged in Sec. 78 (3) and (81) (2) (a) (iii) of the Act. • Theminimum living expense normsmust be utilised when calculating the existing financial obligations. • Inexceptional cases the credit provider may accept consumer declared minimum expenses that are lower than those set out in table 1. In such cases the Questionnaire must be completed. • When conducting the affordability assessment the credit provider must: • calculate the consumer’s discretionary income; • take into account all monthly debt repayment obligations as reflected by a registered credit bureau. • Consider maintenance obligations and other necessary expenses.

9. Principles of the regulations… continued Minimum Expense Norms

10. Principles of the regulations… continued • Examples

11. Principles of the regulations… continued

12. Principles of the regulations… continued

13. Consumer declaration Monthly Expense Items • Accommodation • Transport • Food • Education expenses • Medical expenses • Water and electricity • Maintenance expenses

14. Questions?

15. Thank You!