The National Credit Regulator (NCR) will conduct a “widespread investigation” into the emolument attachments orders (EAOs) obtained by debt collectors Flemix & Associates, Lesiba Mashapa, the company secretary at the NCR, says.

In light of this week’s judgment by Judge Siraj Desai against the law firm, which was found to have obtained EAOs unlawfully and to have engaged in “forum-shopping” (seeking out courts known to provide favourable judgments or issue EAOs liberally), Mashapa says the regulator will also scrutinise the consents to judgment and check for reckless lending in respect of the credit agreements that underlie the EAOs obtained by Flemix.

An EAO is a court order granted in favour of a creditor. It provides for the attachment of a portion of the debtor’s earnings, which the debtor’s employer must pay to a creditor or to the creditor’s debt collectors.

The loans advanced to the 15 debtors who were applicants in the case were “obviously reckless loans, and, unsurprisingly, the applicants defaulted on their repayments”, Judge Desai says in his judgment.

On the consents to judgment, Judge Desai says he was led to the “irresistible conclusion” that they were obtained neither voluntarily nor on an informed basis.

The NCR’s undertaking to investigate Flemix’s EAOs will be a massive exercise, considering that Flemix says it has 150 000-odd “active cases” worth more than R1.5 billion. The firm collects debt for about 45 credit providers.

Judge Desai says that, given how Flemix secured the consents to judgment, the forum-shopping involved and the fact that the EAOs were obtained in the wrong jurisdiction, “it is safe to assume that thousands, if not tens of thousands”, of Flemix’s 150 000 cases involving people in debt having significant portions of their salaries and wages deducted are based on unlawfully obtained EAOs.

The judge says he cannot in good conscience ignore the plight of such people. “The Minister of Justice and Correctional Services, the Minister of Trade and Industry, the NCR, the South African Human Rights Commission and the Law Societies must endeavour to ensure that appropriate measures are in place to monitor the situation.”

The case before Judge Desai was an application brought by the University of Stellenbosch Legal Aid Clinic, acting in the public interest. The university’s law clinic provides advice to thousands of low-wage earners in the Cape Winelands. The law clinic applied to the court on behalf of 15 indigent workers with EAOs. They sought an order to have their EAOs set aside on the basis that they were unlawful. They also called for an order declaring sections of the Magistrates’ Court Act inconsistent with the Constitution, because they allow for EAOs to be issued by a clerk of the court without judicial oversight. And they applied for an order declaring invalid any EAOs obtained in jurisdictions other than where the debtor lives or works, where the debtor gave written consent to such a destination.

Judge Desai granted all of these orders. He also ordered that a copy of the court proceedings be forwarded to the Law Society of the Northern Provinces for it to determine whether Flemix & Associates have breached their ethical duties.

The Department of Trade and Industry (DTI) welcomed the judgment this week. Moosa Ebrahim, the chief of staff at the Ministry of Trade and Industry, says the DTI, National Treasury and the Department of Justice and Correctional Services will release a joint statement soon “to communicate action that will be taken to bring about the benefits of this court order to all affected consumers”.

The judgment, Ebrahim says, gives the NCR the power to enforce a section of the National Credit Act that was undermined by a section of the Magistrates’ Court Act. Credit providers used this to obtain EAOs against consumers in jurisdictions that they do not reside or work in.

He says the judgment clearly calls for more vigilance on the part of the regulators to detect these abuses and take them up to protect consumers.

* The NCR this week referred Lewis Stores and Monarch Insurance to the National Consumer Tribunal for mis-selling credit insurance. The NCR says Lewis and Monarch sold loss of employment cover as part of credit insurance to pensioners and self-employed consumers. It wants the tribunal to order refunds to consumers and impose an administrative fine on Lewis Stores.