If you're struggling to settle your debt in these tough economic times, the last thing you need is unscrupulous creditors who fleece you. Unfortunately, this is the reality for many cash-strapped consumers in South Africa. They are being exploited by dishonest creditors who abuse emolument attachment orders, commonly known as garnishee orders, which allow for money to be deducted from your salary to pay your creditors.
“It is estimated that billions of rands have been over-deducted from already distressed borrowers and transferred to the pockets of unscrupulous lenders and collectors because our current legal framework that regulates emolument attachment orders lacks effective measures to prevent, monitor, identify and then correct irregularities in the collection of debt through these orders," says senior attorney and lecturer Dr Stephan van der Merwe from the Stellenbosch University (SU) Law Clinic. Van der Merwe recently obtained his doctorate in Private Law at SU.
As part of his study on debt collection, Van der Merwe focused on, among others, the historical development, function, purpose and scope of the South African garnishee order as well as the deficiencies in the current framework that regulates this popular civil debt enforcement mechanism.
Van Merwe, who has been representing many vulnerable debtors in court for more than 20 years, says the persistent abuse of garnishee orders remains a serious problem despite various small legal victories and several significant legislative amendments and advances.
“It seems that the judiciary and legislature failed to appreciate the full extent of the problem because collections through garnishee order deductions are still completely disproportionate to the amount of the initial judgment debt. This results in scores of borrowers being caught in debt traps from which they are unable to escape. The negative debt spiral leads to increased unemployment, inadequate economic growth due to a lack of consumer spending and increased demands on social welfare."
According to Van der Merwe, millions of unskilled workers earning small, fixed salaries make for ideal targets for dishonest collectors. Also, naïve employees and disinterested employers are simply no match for shrewd collection agencies who have extensive resources dedicated to these collections.
“As long as debtors have a stable source of income, however small, creditors can confidently engage in largely unregulated and indefinite collections of the debt by garnishing the debtor's wages through emolument attachment orders.
“In the process, debtors are charged excessive interest, collection costs and legal fees to compensate creditors for the supposed risks associated with unsecured lending, while the reality is that they are reaping most of the benefits of securitised lending."
Van der Merwe says the situation is exacerbated by the fragile and convoluted legislative framework that regulates garnishee orders. It fails to provide sufficient protection to debtors.
“Our country's wage garnishment mechanism suffers from deficient judicial oversight during the full extent of the process, leaving it vulnerable to the dangers of creditor dominance. The mechanism also suffers from a lack of legal certainty and transparency, allowing unscrupulous actors to hide their misdeeds in the resulting confusion and obfuscation.
“There is also uncertainty about the expected roles and responsibilities of debtors, their employers, creditors and the governing authorities."
Van der Merwe proposes the development and promulgation of a uniform Emolument Attachment Order Act (EAOA) that is dedicated to regulating and combatting exploitive garnishee order collections.
He says the EAOA should, among others, contain a clear and detailed description of the garnishee order process; be clear about the jurisdiction of the Magistrates' Courts in any matter concerning a garnishee order; provide for the use of plain language; promote fair contract terms; provide for debtor remedies in instances of over-deductions; put a cap on the permissible periodic deductions; place limits on permissible interests, collection fees and legal costs that accumulate during the recovery of debts; and provide for sanctions against unscrupulous debtors, creditors and employers.
“Such an Act would improve legal certainty, deal with the issues of judicial oversight, proportionality, transparency, recourse and sanctions, while also compelling all the relevant role-players to align their functions and attitudes to improve debtor protection. It will bring about fairness, enable abused debtors to recoup illegally collected funds and protect them from future exploitation.
“Promulgating a uniform Act could help to reign in various creditors, collection agencies, legal representatives and their governing bodies, including the Legal Practice Council, who have already demonstrated that they will vehemently oppose any efforts aimed at securing fairness and increased debtor protection in the debt collection market."
Van der Merwe adds that we must continue to promote garnishee order debtor protection by supporting appropriate strategic litigation, education, training and advocacy, and genuine access to justice.