Johannesburg - Unscrupulous lenders are fleecing as much as 75% of South Africans’ salaries, leaving them with little to no income to maintain themselves and their dependants, a report says.
Compiled by the Law Clinic at Stellenbosch University (SU), the report revealed that lenders were using a bag of tricks to side-step the legal requirements enforced by the emolument attachment order system, also known as a garnishee order.
The emolument attachment order system limits the amount that can be deducted from an employee’s salary to a maximum of 25%.
Dr Stephan van der Merwe, a senior attorney and lecturer at the SU Law Clinic, who conducted the investigation and compiled the report, explained that while garnishee orders remained a potentially lucrative and secure collection instrument, it was now considerably more difficult to issue them.
Van der Merwe said that as a result, creditors were pivoting to alternative methods to keep expanding their lucrative business enterprises by extending reckless loans while continuing to reap the benefits of wage garnishment.
He explained that the use of narrative statements from debtors impacted by these deductions, as well as various documents such as credit agreements, affordability determination schedules, debtor pay slips and creditor statements, was used to investigate the widespread payroll deduction system.
The system allows creditors to enter into credit agreements with debtors on the basis that the loan, interest and fees will be collected from the debtor’s employer.
According to Van der Merwe, debtors seem to have been lured into debt traps from which they were unable to escape, as outstanding loans were simply incorporated into new loans, which opened the way for more loans to be extended to debtors.
He said this was exacerbated by the availability of unregulated payroll deduction mechanisms, which seemed to encourage more of this behaviour by creditors.
“In many instances, deductions on loans are made in favour of multiple creditors and for amounts well above 25% of the debtor’s salary. These deductions are so unfettered and egregious that, in some cases, employees received zero income.”
Van der Merwe further explained that in a specific case, a payroll deduction of R11 178 was processed against a debtor’s monthly salary of R15 041.
In another case, payroll deductions totalling R14 566 were processed in favour of two creditors against a debtor’s monthly salary of R21 475.
In both cases, he said the debtors received a net pay of zero rand with which to maintain themselves and their dependants for the relevant months.
The report also revealed that when employees queried salary deductions with their employers, they were often told that employers were obliged to keep deducting amounts as long as the creditor insisted on this, based on the credit agreement and the debtor’s irrevocable instruction for an amount to be deducted from their wages to repay their debt in terms of the garnishee order.
Van der Merwe called on lawmakers to effect legislative development to protect vulnerable debtors against payroll deductions and unscrupulous lenders.
“We need urgent intervention to veto the prevailing unconstitutional and unconscionable abuse of the payroll deduction mechanism.
“This mechanism should not serve as an incentive for unscrupulous creditors to gain financial windfalls by inflating reckless loans with disproportionate costs based, among others, on high rates, initiation fees, monthly service fees, and credit insurance. The prevailing lack of regulation in this regard is quite simply irresponsible,” he added.
The Star