Think twice about giving your employer the right to deduct money from your salary for the repayment of debt – in other words, giving your employer permission to pay one of your creditors before paying you your salary. I’m not talking about an emoluments attachment order (EAO), which is a court order compelling your employer to deduct from your salary money you owe a creditor who has obtained default judgment against you. I’m talking about you choosing to have your salary docked – by your payroll department – to pay a creditor. It seems a crazy thing to do, but apparently it’s not uncommon, particularly among state employees.
“Approximately 30 percent of First National Bank’s affordable housing book comes from payroll deductions,” Lee Mhlongo, the chief executive of housing finance at FNB, writes in a blog post on the bank’s website.
“Arranging a payroll deduction simplifies one’s life, as you do not have to agonise about the debit order coming off the account. Instalments are paid directly by the employer to the service provider (the bank) on behalf of the employee. The employer then pays the balance of the salary to the employee/client’s account.”
Making use of a payroll deduction to service a home loan has benefits, Mhlongo says, including a better risk profile with the bank, owing to there being less chance of default.
That may be so, but getting your payroll department to stop a monthly deduction from your salary can be a nightmare.
confused hr department
A Gauteng consumer who was paying her Standard Bank bond instalment via a payroll deduction became over-indebted and went into debt review. As soon as she was under debt review, she instructed her employer, the Gauteng treasury, to stop paying Standard Bank. (When you go into debt counselling, your debt counsellor will stop payments to all credit providers in order for them to be paid via the debt review process.) But the instruction was not followed, and the consumer’s employer continued to pay her home loan instalments to Standard Bank. When the consumer challenged this, her employer asked her to obtain a letter from Standard Bank issuing the instruction to cancel payment. But since the instruction to pay the creditor via payroll deduction did not originate with Standard Bank, it refused to issue a letter.
And it happened again. When the consumer’s debt counsellor warned the employer that its failure to carry out the employee’s instruction was placing her in danger of defaulting on her debt review, the employer asked for proof that the consumer was under “debt administration” – something quite different to debt counselling.
The debt counsellor pushed back, asking that since the deduction from the payroll was not court ordered, nor instigated by Standard Bank, but by the employee herself, what gave Persal (the government’s personnel salary system) the right to refuse to take the written instruction of the employee? “Be that as it may, please find attached documentation which confirms that the consumer has applied for debt review,” the debt counsellor said.
The employer’s response is telling: “The staff in human resources are just trying to ensure that they are covered should there be any repercussions from any financial institution.”
As the debt counsellor says, the employer’s over-zealous endeavour to protect itself put the employee at risk.
It took the consumer and the debt counsellor three months to get the employer to stop paying Standard Bank.
“It raises the question of whose interests are being served: the consumer’s or the credit provider’s?” consumer acitivist Simon Lapping says.
HUGE DEDUCTION
A Port Shepstone traffic officer, who had an existing loan from a microlender, obtained a R5 000 payday loan from the same lender. She was repaying her loans via payroll deduction. When she went under debt review, the microlender managed to get her employer to deduct R9 000 of her salary in one fell swoop – almost half of her gross income.
“It’s equivalent to the government doing debt collecting against its own employees,” Lapping says.
What these consumers have experienced also reveals ignorance on the part of payroll staff. Clearly, they don’t understand how debt review works.
There’s a lot of misinformation being disseminated about debt counselling, and some of the biggest offenders are microlenders.
The following is published on microlender Boodle’s website as an answer to the question “What is debt review?”:
“We are a responsible lender and will also not even consider giving you Boodle if you are already debt stressed. We also take fraud very serious [sic] and if you abuse our goodwill and apply for administration and debt review after we have given you Boodle we will be very disappointed and may even open a case of fraud with the South African Police Services. If you are in fact debt stressed we suggest you seek counselling and approach a debt counsellor to assist you.”
I get that Boodle is trying to dissuade “debt-stressed” consumers from acquiring credit with the intention of then going under debt review. But consumers who are debt-stressed wouldn’t be able to get credit if credit providers did proper affordability assessments, which they are legally obliged to do. Their failure to properly assess affordability is what the National Credit Act defines as “reckless lending” and there’s no excuse for it.
Lapping says Boodle is also seeking to discourage consumers from applying for debt review – by threatening them that they will be sued for fraud. He has lodged a complaint with the National Credit Regulator (NCR).
Early this year, the NCR referred to the National Consumer Tribunal a case of reckless lending against Boodle. Lesiba Mashapa, the company secretary at the NCR, says the case was settled, with Boodle agreeing to pay an administrative fine of R500 000 and write off the loans.