ast week, a landmark ruling raised questions about the legality of many emolument attachment orders (EAOs).
Commonly known as garnishee orders, these court orders allow credit providers to deduct outstanding payments directly from an individual’s salary.
A key ruling was that the judge deemed the EAOs in the case before him unconstitutional because they had not been granted by a magistrate and only required the consent of the individual. This ruling is still scheduled to go before the Constitutional Court and may be contested.
Moreover, even if changes are made in terms of the Magistrates’ Courts Act to require EAOs to be granted by a magistrate, the legal opinions are that it is unlikely that these will be applied retrospectively – but we will have to await the Constitutional Court ruling on the issue in due course.
More importantly, the court upheld the National Credit Act’s requirement that an EAO can only be granted by a court close to where the consumer works or lives. Many EAOs were issued in other provinces, preventing the consumer from enacting his or her right to go to court to contest the EAO itself or the amount being deducted.
Deputy credit ombud Reana Steyn says that, over the past six years, the second-highest number of complaints the office has dealt with has been about EAOs.
“In our experience, consumers who logged complaints with our office had similar problems to those raised in the court case. In the past, the conflicting legal interpretations of the legislation sometimes made it difficult to assist consumers.
“Now, some of the interpretation issues have been settled,” says Steyn, who adds that, apart from jurisdiction issues, the ombud has additional concerns about practices of overcharging on interest and fees, as well as reckless lending, which were also raised by the court as a major concern.
“We wish to alert consumers that they may question the validity of a loan or other credit agreement after it was granted if they suspect that it may have been a reckless credit agreement.
“If a consumer cannot afford the loan/credit agreement and the agreement renders them unable to pay their monthly expenses and other credit agreements, such an agreement may be reckless. Our office can help consumers to investigate whether or not it was reckless and advise on the way forward,” says Steyn.
The court ruling has led to a plethora of lawyers offering services to investigate EAOs, but consumers can use the services of the credit ombud for free.
Once you have contacted the ombud’s office, it will examine the credit agreement from inception to understand whether the agreement and subsequent legal action were valid:
They will analyse the affordability assessment conducted by the credit provider to see if the loan was reckless. If the consumer was truthful about his or her expenses and the loan was unaffordable, it could be deemed reckless and written off.
If the loan was valid, the ombud will then look at the interest rate and fees charged to ensure they are in line with the National Credit Act.
The credit provider will be asked to provide a full statement showing capital, interest and repayment calculations to ensure the consumer has not overpaid.
The ombud will also look into whether the EAO was issued outside of the consumer’s jurisdiction, and if so, it could lead to the EAO being rescinded.
“Before an attachment order can be granted, a judgment would have been issued that is valid for 30 years. Even if one rescinded the EAO due to court jurisdiction, the credit provider can simply issue a new one or execute the judgment through other means,” says Steyn, who adds that it does, however, offer some leverage for negotiation.
The ombud’s office itself cannot go to the courts to rescind the EAO, but is able to negotiate with lawyers on a consumer’s behalf.
If there is a small amount outstanding, the consumer could request that the balance be written off or further reduced rather than requesting the attorneys go to the trouble of rescinding and reissuing a new order.
Steyn says they will, as a matter of course, investigate whether interest or fee calculations have been made in error. If they have, the office will negotiate to have the amount credited to the consumer’s account or repaid.
“Consumers who owe the debts should not assume that they no longer have to repay, even if the EAO was issued out of the wrong court.
“But there is now a good reason to investigate the validity of each of these orders, and it may bring relief to many consumers,” says Steyn.