Western Cape High Court Acting Judge Keith Engers’ ruling in Truworths Ltd and Others v Minister of Trade and Industry and Others means credit providers are no longer compelled to use payslips and bank statements as validation of income.

The National Credit Act gives credit providers the discretion to determine their own affordability assessments, provided the model they use results in a fair and objective assessment of what they can afford. In an examination of the judgment on the BusinessLIVE site, Angelique Ardé notes the regulations that were the subject of the court case were introduced in March 2015.

‘In terms of the sub-regulations that have been set aside, credit providers had to validate gross income by way of the three latest salary slips or bank statements showing your salary deposits if you are a salaried employee; and your three latest bank statements or financial statements if you are self-employed, informally employed or employed but don't receive a payslip or proof of income.’

Engers said the provisions for validating gross income imposed ‘a rigid set of requirements’ on credit providers which discriminated against consumers who did not have bank accounts and who were informally or self-employed.

Engers pointed out that scrapping the sub-regulation does not do away with the credit provider's need to ascertain the consumer's gross income ‘as a step towards calculating discretionary income’.

He also ruled the applicants had not made a good case for the setting aside of other sub-regulations – one stating that if one's gross income varies, the credit provider must use an average over the previous three months; and another which states that the applicant must provide ‘authentic documentation’ to a credit provider to enable it to assess whether the applicant can afford the credit.

The author adds the judgment 'reflects poorly' on Minister of Trade and Industry Rob Davies. Engers ruled that the Minister changed ‘what appeared to be a fairly flexible requirement into a far more rigid and stringent one’, and that there were indications that the Minister did not take public input into account before finalising the regulations.

Full analysis on the BusinessLIVE site

Truworths Limited and Others v Minister of Trade and Industry and Others