Garnishee order ruling welcomed

DURBAN consumer Shaun Pillay*, who works for a packaging company, had been under debt review for four years, when he noticed a surprise R1 000 deduction from his salary earlier this year. Puzzled, he took the matter to his debt counsellor, Vanita Harrypersadh of Spendwise Debt Counselling, and asked her to investigate.

What Harrypersadh found when she pulled up his credit record was that he had no judgements against his name, and he claimed he had not signed an acknowledgement of debt or agreed to an Emoluments Attachment Order (EAO), commonly called a garnishee order, instructing an employer to deduct a sum of money from an employee’s salary in order to pay a creditor.

She dug deeper and found that the consumer had apparently had a verbal agreement with a private person who had promised to give him a free training course if he recruited five clients. Instead, Pillay ended up with an EAO of R1 000 to pay off a whopping R60 000 mystery debt to the individual.

Harrypersadh is still investigating how the EAO came into being without any apparent contract or legal process having being followed to collect the “debt”, such as the serving of a letter of demand and summons, or any subsequent debt judgment against her client. She suspects there is something highly irregular about the order and points out that around 80% of EAOs she has investigated have been problematic.

Harrypersadh believes Pillay could be one of thousands of consumers with irregular garnishee orders against their salaries, and says in the worst cases consumers earning R8 000 a month have EAOs for R7 000, leaving them with just R1 000 to pay for accommodation, food, transport and their children’s education.

The National Credit Regulator (NCR), the Credit Ombudsman, the SA National Consumer Union (Sancu), Consumer Action Network (CAN) and other debt counsellors have also highlighted the alleged abuse of garnishee orders by unscrupulous lenders and debt collectors, where for example EAOs have been obtained, sometimes fraudulently without consumer consent, in small courts in far-flung jurisdictions outside the province where the consumer and employer reside.

The regulator, consumer groups and debt counsellors have welcomed a recent Constitutional Court judgement which prescribes judicial oversight over the EAO process to ensure orders granted in future are equitable, just and of an appropriate amount that consumers can afford. The judgement follows a ruling by Western Cape High Court judge Siraj Desai, who found the SA system for granting EAOs by clerks of the court unconstitutional.

Desai declared all six EAOs in the case before him “unlawful, invalid and of no force and effect”.

The University of Stellenbosch Legal Aid Clinic had launched the initial court application for poor clients, with the support of philanthropic businesswoman Wendy Appelbaum, Summit Financial Partners and Webber Wentzel’s pro bono unit. In its prospective judgement, the Constitutional Court confirmed six of the eight orders Desai handed down and amended section 65J (2) of the Magistrates’ Courts Act to bring it in line with the constitution.

Gail Smith, spokeswoman for the SA Human Rights Commission (SAHRC), which joined the case as a friend of the court, said the judgement had “struck a constitutionally appropriate balance” between the rights of creditors to recover debts and the protection of debtors’ rights.

“The Court has clarified the law, which the SAHRC believes will provide guidance to the courts and ameliorate the human rights violations that are currently occurring,” Smith said.

Credit Ombudsman Nicky Lala-Mohan said the order would put a stop to the abuse of EAOs. “A clerk of the court no longer has the authority to grant an EAO. It can only be granted by a magistrate, after being satisfied that the order is just and equitable and taking into account what amount is appropriate. The process will be assessed in terms of fairness and take into account what the debtor can afford, which was not addressed previously,” he said.

Ismail-Mukaddam said CAN was inundated with queries about garnishee orders that had been granted for up to 10 times the initial debt with various administrative costs and interest added that consumers had not agreed to.

“Many workers take home less than a third of their income after garnishee deductions, leaving them frustrated and demotivated. Employers also have to deal with low motivation, high absenteeism and high staff turnover due to employees quitting their jobs just to break free from the stranglehold of garnishee orders that has become a dominating characteristic of formal employment, especially for low to middle-income earners,” he said.

Ismail-Mukaddam said the ruling would prevent the granting of irregular EAOs and protect consumers. “The administrative hurdles placed in the path of creditors will force them to use alternatives to garnishee orders which places employees in a more favorable position to negotiate affordable terms,” he said.

He said the judgment would force creditors to accept lower repayments and extra costs of debt recovery. “Unscrupulous operators who have been fleecing employees by abusing the system will be filtered out as they will not be able to withstand the burden of proof required by a magistrate,” he said.

Sancu spokesman Clif Johnston welcomed the judgement saying it would go a long way to prevent over-indebtedness.

“We are aware of consumers whose salaries are almost completely consumed by garnishee orders, and who then approach shady loan companies simply to survive. Sancu has heard of consumers being given advice to change bank accounts, or even to change jobs in order to evade the burden of garnishee orders. Some are so desperate they resign and reapply for their old jobs, to access their pensions,” he said.

“It is easy to blame consumers for getting themselves into debt, but that conveniently overlooks the extreme lengths to which businesses go in persuading consumers to spend beyond their means. Up to now the odds have been stacked in favour of business, which stood a good chance of recovering the debt through garnishee orders. Now the tide is beginning to turn in favour of consumers,” he said.

While Harrypersadh has welcomed the judgement as a victory for consumers, she remains concerned about the thousands of historic EAOs, like Pillay’s, which remain unaffected by the judgment. She has proposed that debt counsellors work with the NCR and credit