The Credit Granting Process
We have had many queries relating to the credit granting process, both from a consumer’s perspective and from a credit provider’s prospective. Recent amendments to the National Credit Act have made the process a bit more cumbersome but certain obligatory inclusions have been made to protect both the consumer and the credit provider. Keep in mind that the credit provider has an obligation to refrain from granting credit recklessly. The steps that need to be undertaken can briefly be summarised as follows:
The credit provider, after being approached by the consumer, engages a prospective consumer by inquiring the amount he/she wishes to borrow. Thereafter begins the affordability assessment in terms of regulation 23A of the National Credit Act, which requires the credit provider to utilise certain criteria when it conduct an assessment in order to see whether to consumer will be able to afford the loan. These criteria deal with:
- Establishing the consumer’s existing financial means and prospects;
- Establishing the consumer’s existing financial obligations; and
- Inquiry into the debt re-payment history of the consumer concerning other credit agreements.
The prospective consumer is requested to provide three latest payslips and/or 3 months’ latest bank statements. It is not obligatory to provide payslips or documented proof of income and bank statements in which the consumer’s salary gets deposited.
The prospective consumer is requested to provide a complete breakdown of his/her financial obligations, including existing debt obligations. A Credit Bureau report is drawn in order to establish the consumer’s current debt obligations.
The credit provider, with the necessary information, conducts an affordability assessment in accordance with Regulation 23A. Said regulation requires calculating the consumer’s nett income (gross income less statutory deduction), thereafter deducting the consumer’s expenses (including living expenses) and applying the minimum expense norm table (included in Regulation 23A), and deducting the consumer’s current debt obligation payments whereafter a discretionary income is calculated. Should the process prove favourable to the consumer by yielding a positive amount left for a prospective loan, the consumer’s debt repayment history is evaluated by a further consultative process utilising the consumer’s Credit Bureau report as reference.
All the information provided by the consumer has to be verified and cross checked with the documents provided by the consumer in order to verify the veracity of such information. Once this process has been completed the consumer and the credit provider each sign the affordability assessment conducted. The credit provider would then advise the consumer of the loan amount he/she qualifies for.
Once the affordability assessment has been completed and the consumer has received advice in accordance with the above and in relation to the amount of the loan for which the consumer qualifies for, the credit provider should generate a Pre-Agreement Statement & Quotation, valid for 5 working days, in order to fully explain the total cost of credit involved in respect of the loan amount requested by the consumer and to enable to consumer to compare different quotes to obtain the best rates.
Should the consumer accept the Pre-Agreement Statement & Quotation produced by the credit provider, the Loan Agreement is concluded by the consumer containing all prerequisite information as required by the Act read with its Regulations. In the Micro Lending Industry it is common practice and allowed that a Pre-Agreement Statement and Quotation and the Loan Agreement consist of one document.
Credit providers should be aware that they hold the obligation to safekeep all the documentation which relate to the steps mentioned herein for a 3 (three) year period and consumers should be aware that they have the obligation to fully and truthfully engage in the process mentioned herein. In the event that a consumer has not been truthful, he/she would not be able to raise the issue of reckless credit being granted by the credit provider. Dishonesty by the consumer in the credit granting process is a complete defence to a credit provider against a claim of reckless credit.