Fast little loans
Over-indebtedness is believed to be one of the catalysts of the Lonmin strikes, and in one incident a miner was found to have paid legal fees as high as 10 times his loan amount. Such “undesirable” practices relating to garnishee orders may not be illegal, but they are immoral and need to be investigated, Charlotte van Sittert, an attorney from the University of Pretoria Law Clinic (UPLC), says
At a debt summit in Midrand this week, Van Sittert delivered a presentation on the undesirable practices relating to garnishee orders (see “Definitions”).
The debt summit, which was co-hosted by the Credit Ombud and the National Debt Mediation Association (NDMA), was held to address burning issues relating to the prevailing state of over-indebtedness in South Africa.
“Garnishee orders provide a significant barometer of the level of indebtedness in a nation,” Van Sittert says.
UPLC recently carried out an audit of garnishee orders following research in 2008 by UPLC academics Frans Haupt and Hermie Coetzee into the “The incidence of and the undesirable practices relating to garnishee orders in South Africa”.
Van Sittert says both the audit and the research identified “similar problems” with garnishee orders. These include:
Shortcomings in the process
Van Sittert says various problems arise where you, as the debtor, give written consent to the garnishee order. These include forged signatures, the difficulty in authenticating the debtor’s signature, and debtors alleging that they were made to consent under duress.
Other problems are financial illiteracy, where the debtor does not fully understand the costs of an order, their obligations in terms of the order, or how fees and interest influence the repayment period.
When a garnishee is issued in terms of the Magistrate’s Court Act, a registered letter is sent to you, the debtor, informing you that a garnishee order will follow. But Van Sittert says the letter does not state the instalment amount being applied for, and nor is the creditor obliged to serve you (or your employer) with a certificate of balance confirming the debt, legal costs, interest or the proposed instalment.
Van Sittert says it is also problematic that at no point in the process are you, the debtor, subject to a financial enquiry to ascertain your financial position as a whole. Effectively, your creditor and the creditor’s attorney make a unilateral decision on the amount of the garnishee, irrespective of your other financial obligations.
There is also no statutory cap on the amount that can be deducted from the debtor’s salary. The law states only that the deduction “must not cause the employee not to have sufficient means for his own and his dependants’ maintenance”.
In spite of this, it’s not uncommon for a garnishee order to result in zero or near-zero take-home pay, Van Sittert says.
The debtor can approach the court for a reduction in the amount of the instalment, but this often leads to further legal costs.
Lack of legal and financial knowledge at payroll office
Van Sittert says payroll office staff administering the garnishee order sometimes stop deductions after the capital amount has been paid, but when interest and costs are still payable. This results in the garnishee order being re-implemented, which creates another round of costs. Van Sittert says an employer has a statutory duty to deduct money according to the order and to pay it over to the relevant creditor.
“A warrant of execution may be issued by the court against the employer who fails to give effect to the order resulting in the attachment and eventual sale in execution of property.” Payments made by the employer serve as a partial discharge of the employer’s obligations to the employee. Failure on the part of the employer to make payment to the creditor constitutes a breach of obligations to an employee, who may have a legal claim against such an employer based on negligence.
The Magistrate’s Court Act allows for an employer to recover from a credit provider a commission of up to five percent of the amount collected from the amount payable. This is for collecting money on the credit provider’s behalf.
Van Sittert says some attorneys and debt collectors get the debtor to sign an acknowledgment of debt whereby the debtor agrees to foot the bill for this commission. “This is illegal,” she says.
The law states that the garnishee order must be issued from the jurisdiction of the debtor’s employer. This is for the benefit of the employer and the employee. But sometimes debtors consent to the jurisdiction in a court far from his or her workplace, Van Sittert says.
“This creates practical difficulties, as well as costs, for the debtor or employer who want to challenge the order, and quite often means the debtor is less likely to challenge the order.”
Van Sittert says poor administration by credit providers often leads to a situation where the same debt is handed over to different attorneys for collection. She told of the case of an attorney who agreed to set aside one duplicate judgment and refund the debtor for legal fees, but of the R4 702 legal bill, he refunded only R2 369 to the debtor and kept the balance.
She says the debtor shouldn’t have been charged these fees, but rather the credit provider. “It was the credit provider who gave wrong instruction in the first instance.”
High legal fees
Excessive legal fees are under the spotlight following reports of a Lonmin miner who was has paid almost R12 000 for a R1 000 loan, and still owes R3 000. His legal fees amounted to just under R10 000. Van Sittert says such over-charging is not confined to the mining community. “It raises moral concerns. Even if it’s legal, if it contributes to over-indebtedness, it must be investigated.”
She says there is also a dispute in legal circles around the interpretation of in duplum (see definitions) in terms of the National Credit Act (NCA). “Some says in duplum caps attorneys fees; others say in duplum does not include attorneys fees.”
Wrong capital amount
“Wrong capital amounts are a common irregularity and impossible for a clerk of the court to detect,” Van Sittert says. “A garnishee order merely reflects the amount judgment was granted for.” She says in one case the outstanding balance was R2 628, but the judgment and garnishee was issued for R8 702.
Van Sittert says both research reports identified the huge mistakes that attorneys make when calculating outstanding balances. “Balances received from the attorney must be checked against payments made by the payroll office,” she says, telling of a case where collection attorneys didn’t include certain payments made, which affected the outstanding balance significantly.
Van Sittert says she has come across illegal garnishee orders issued in terms of a clause in a credit agreement – a clear breach of the NCA. She gives the example of a cash loan company operating from the same premises as the employer.
Cash loans are granted to employees and repaid in terms of an illegal garnishee authorising the employer to deduct instalments directly from the salary of the debtor. The intention of such an agreement is to give the credit provider first bite at the debtor’s salary – an advantage over other credit providers. This quickly sends consumers into a debt spiral.
Van Sittert ended her presentation with a quote from abolitionist Frederick Douglass, who said: “Where justice is denied, where poverty is enforced, where ignorance prevails, and where any one class is made to feel that society is an organised conspiracy to oppress, rob and degrade them, neither persons nor property will be safe.”
The term garnishee order is used incorrectly to describe an emoluments attachment order (EAO), says attorney Charlotte van Sittert. She says: “A true garnishee order refers to the attachment of a debt owed to a debtor by a third party, and is usually a once-off arrangement, such as money owed to a debtor for work flowing from a contract. With an EAO, an employer is obliged by law to deduct instalments from the salary of the employee against whom the EAO was issued. On the court order, the employer who administers the EAO is referred to as the ‘garnishee employer’ – hence the confusion about the terminology.” (For the purposes of this article the terms have been used interchangeably.)
In duplum in common law limits the interest and all other costs that a creditor may charge on an account that is in arrears. This is to protect debtors from exploitation by creditors.
If you have a complaint about a garnishee order on debt, contact the Credit Ombud, Manie van Schalkwyk, on 0861 662 837 or 011 781 6431, or fax 086 683 4644, or email firstname.lastname@example.org
The postal address is: Post Suite 123, Private Bag X10015, Randburg, 2125