In March 2018, a High Court ruling removed the income-verification requirements from the National Credit Act. This means that credit applicants are not required to present proof of income documentation, such as pay slips or bank statements, to lenders. The reasoning was that this requirement was excluding those, who couldn’t produce these documents, from obtaining credit. This was the only amendment to the Affordability Regulations, and credit applicants are still required to provide proof of identity.
While the National Credit Regulator isn’t challenging the ruling, credit providers are still responsible for assessing an applicant’s financial means before extending them credit.
From a lender perspective, pay slips and bank statements are still important documents to obtain in the account application process. These documents can help lenders detect fraud and verify personal information.
Pay slips help lenders verify:
- How long an applicant has been working for and in what position;
- Determine their pay date, confirm which bank account the money is being paid into, and the type of payment (electronic/EFT or cash deposit);
- Personal details such as contact numbers, address, ID, and tax number;
- Employer details which can be checked against websites or yellow pages – fraudsters often use call centre numbers as employment validation.
Bank statements are able to verify many of the same details as pay slips, but also provide additional insight into the financial standing of the consumer, such as:
- Verify that income is deposited into the correct account and on the correct date, and where applicable, if their pay date falls on a Sunday or public holiday, meaning their income is paid on an alternate date, e.g. the day before or after a public holiday;
- Ensure the bank account is in the same name as the ID document;
- Check their finances for the last 3 months and determine gross and nett income;
- View deductions not on the bureau, e.g. rent, groceries, etc., and calculate their discretionary income and cash flow.
These documents provide additional information that credit bureaus can’t, and can help you in making better lending decisions. As a credit provider, you can require these documents as part of your internal risk policies and is therefore, not unlawful to request them. The cost of processing these documents is far outweighed by the benefits of minimising fraud and reducing bad debt.
If you’d like to find out which of our products can help you improve your risk management procedures or to determine affordability, contact one of our consultants at [email protected] or call +21 888 6000.