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The National Credit Regulator (NCR) is finalising its response to a lawsuit brought by three retail groups in June challenging its new affordability assessment regulations, which retailers claim caused millions of rand in lost sales.


Truworths said in its report for the year to June, published in September, that it and two other retailers had instituted legal action against the regulator and the Department of Trade and Industry, to review the affordability assessments. The two other retailers are TFG and Mr Price. “Their main issue is income verification, where the regulations require credit providers to obtain payslips and bank statements to validate the consumers’ income,” said NCR company secretary Lesiba Mashapa.

Truworths CEO Michael Mark said managing the effect of the regulations was the group’s biggest challenge this financial year. The regulations, which require anyone providing credit to obtain proof of income in the form of the three most recent months’ payslips or bank statements, has caused an estimated R200m in lost credit sales to the group.

“As many Truworths customers are self-employed or work in the informal sector, they are unable to provide the necessary documentation,” Mark said in the annual report. “Others have found the administrative burden too cumbersome and have not followed through with opening an account despite having applied to do so.”

About 30% fewer accounts are being opened each month owing to the regulations, says Mark, recounting how credit sales grew 18% during the year before the regulations.

“Since the implementation of the regulations we have seen cash sales grow by 19% while credit sales have slowed to 8%. The regulations have resulted in an estimated loss of at least R200m in credit sales and a profit after tax impact of about R70m [in 2016].”

The number of Truworths active accounts dropped 1% to 2.6-million, with its YDE subsidiary recording no new accounts at all.

Credit is big business for Truworths, comprising 69% of its R17bn in retail sales.

At Mr Price, credit growth came under pressure as the assessment regulations bit, rising just 2.3% in the year to March. This component comprised 17.2% of its R19.6bn in retail sales for the year.

Clothing retailers are not the only ones gnashing their teeth, however. NCR statistics showed the retail sector saw a 34% plunge in credit granted during the fourth quarter.

General retailer Shoprite has felt this most keenly in its furniture division. “The latest amendments to the act has legislated a more onerous calculation of affordability,” CEO Whitey Basson said. “This had a material effect on credit sales, which affected finance and insurance income.”

Shoprite did not disclose this finance and insurance income separately.

Furniture retailer Lewis did disclose the financial hit it has taken. It rang in 64.3% of its total sales for the year to March on credit, which dropped below its target range, and revenues grew a tepid 2.2% to R5.8bn. Of this amount, R2.7bn came from merchandise sales.

“The [effect of] the affordability assessment regulations is reflected in the decline of 10.3% in credit sales in the second half of the year,” said CEO Johan Enslin. “Group credit sales for the year were 4.5% lower than the prior year.”

The rest of Lewis’ revenue comes from finance charges, insurance and “ancillary” fees, and even this is under pressure as slowing credit sales and a strategic shift from long-term to lower-priced monthly insurance policies take their toll.

Source: Business Day