How garnishees keep gouging debtors
Despite a landmark ruling, shady collectors are still preying on victims
It has been 13 months since the Constitutional Court handed down what was lauded as a landmark ruling on the illegality of certain practices in the administration of garnishee orders.
But for many of the applicants in that case, life is just as bleak – and activists claim that fee-gouging and fraudulent court orders continue unabated.
Lisinda Bailey was one of the applicants in the High Court in Cape Town case on garnishee orders that was confirmed by the Constitutional Court. Although she cried with relief when the judge ruled in their favour, she says her life was ruined by the irresponsible granting of credit and subsequent garnishees.
"[After the ruling] they forgot about us," she says, "just like that." As her debt spiralled, she applied for loans to pay off earlier ones and says the loan company failed to carry out, or faked, the information on affordability checks. She couldn’t pay the rent on her flat in Stellenbosch, and lost her job.
"I was so stressed. I was sick. I couldn’t work," she says.
Today she has no debt but is still financially stressed, working as a domestic worker and barely earning enough to feed her family.
Emolument attachment orders (EAOs) are sanctioned by courts as a solution to the "problem" of debtor default. Most of what is called "garnishees" in SA are actually EAOs.
EAOs are court-issued documents served on employers of debtors, compelling them to garnish the debtor’s wages and submit these payments to the creditor who secured a judgment. EAOs are administered by the Magistrates’ Court Act, the National Credit Act, the Debt Collectors Act and other legislation such as the Basic Conditions of Employment Act.
Garnishees are supposed to be the nuclear option when all other attempts to compel repayment have failed. The fallout is nuclear too.
In 2012, garnishee orders and overindebtedness were closely linked with the Marikana massacre. Garnishees and loans from registered credit providers and unregistered loan sharks were a significant contributing factor to the Marikana wage dispute and strike.
In 2015 and 2016, the Stellenbosch Law Clinic, 15 consumers (mostly workers from the winelands) and their advocates took on 13 creditors, the law firm Flemix & Associates, the justice minister, the minister of correctional services, the trade and industry minister and the national credit regulator.
Judge Siraj Desai ruled that employees in the Western Cape were exempt from complying with EAOs obtained outside the province or in other jurisdictions in the country.
It’s difficult to get hard numbers on how many garnishee orders there are in SA. There is no single database or repository of information.
In 2007, the Public Service Commission released a report on garnishee orders on the wages of public servants. It found that 216,857 public servants had garnishee payments coming off their salaries. At the time, this was 20% of public servants and their garnishee orders amounted to more than R1bn.
A report entitled The Incidence of and the Undesirable Practices Relating to Garnishee Orders in SA was published in 2008 by the University of Pretoria. The study was headed by Frans Haupt, director of the university’s Law Clinic.
In 2013, the clinic released a follow-up report, led by attorney Charlotte van Sittert.
According to the reports, in 2013, at least 1.2-million people in the workforce had EAOs and most had more than one.
A September 2016 report by QLink, a payroll audit firm owned by Summit Financial Partners, said there were 1.22 EAOs per employee with an order in SA. The public service, followed by the mining industry, had the highest rates of staff garnishees.
The university’s reports thoroughly explore the legal framework for EAOs, highlighting that the Magistrates’ Court Act provides wide interpretive scope and allows abuse.
Five main "loopholes" are used to abuse the act, but the Constitutional Court dealt with only two.
Section 65J (1) (a) of the Magistrates’ Court Act says these orders must be given in the same jurisdiction as the employer. A debtor can consent to waive this right, but the university reports found that debtors are often duped into consenting, or consent is faked.
Unscrupulous attorneys were taking their applications to more sympathetic courts around the country, knowing the debtors would not appear in court to dispute them.
Desai ruled that employers are exempted from enforcing garnishee orders against their employees that were obtained outside their province or in another jurisdiction.
Many countries including the US, most in Europe and several in Africa have garnishee law similar to SA’s. In the US, most states cap the percentage of income that can be garnished at 25% or lower
Debtors report signing blank consent forms or being bullied into consenting to jurisdiction changes by burly men who show up at their homes or workplaces. They also report consenting to judgment (a method of skipping through some of the main steps in obtaining an EAO) should they default at all in future, without knowing what they are signing. A common complaint is that their signatures are forged.
The Magistrates’ Court Act empowers magistrates to grant EAOs, but another clause gives clerks the power.
There are accusations of clerks being bribed, skipping over affordability measures and approving whatever is put in front of them.
The Constitutional Court confirmed the order of the High Court in Cape Town that elements of section 65J (2) of the Magistrates’ Court Act were inconsistent with the Constitution as it failed to provide for judicial oversight on these orders. The newly enacted Court of Law Amendment Act deals with this.
The university reports show affordability problems, overcharging and in duplum errors — an aspect of common law (also codified slightly different in the National Credit Act) that limits interest to no more than the original capital amount. The researchers report double in duplum charges, miscaptured original credit amounts and escalating lawyers fees.
The Council for Debt Collectors specifies the expenses and fees their members can charge (ranging from R2.50 to R435). Lawyers’ fees relating to debt collection through litigation are regulated but unlimited. In most cases, they may charge only certain fees for certain actions, but can charge for every action relating to the order, and perform as many acts as required.
The follow-up university report says the Attorneys Act does not "deal directly with attorney’s fees or the collection commission charged by attorneys", leaving this to law societies to regulate. Members of the societies may also charge a "collection commission" on "each payment on instalment".
The lawyers’ fees do not necessarily reflect the amount they are tasked with collecting. So fees on a R100 debt are not necessarily less than those for collecting a R100,000 debt. The 2013 university report includes an example where a miner’s debt was inflated to 1,200% of the initial loan amount.
The debtor had already paid more than R11,690 on a debt of R1,000 and there was still R3,084.70 outstanding on the statement, which said R9,934.39 was the legal fees.
The Court of Law Amendment Act tightens up jurisdiction issues. A significant win for consumers is the provision that limits garnishee instalments to no more than 25% of the debtor’s basic salary.
Many countries including the US, most in Europe and several in Africa have garnishee law similar to SA’s. In the US, most states cap the percentage of income that can be garnished at 25% or lower.
According to a joint investigation by NPR and ProPublica, about 4-million Americans were facing wage garnishment in 2013 — 1.2% of the population. In SA, between 2% and 6% of employees are garnishees.
In Greece, wages can only be attached for debts owing to the state. Many developing countries protect wages from legal attachment (except for the payment of spousal or dependant maintenance).
Association of Debt Recovery Agents CEO Marius Jonker believes the Court of Law Amendment Act will not result in the consumer protection it intends. "It places a massive onus on the credit provider, and will inevitably result in court proceedings; in other words, that the consumer has to appear in court," he says.
"Because of all the requirements, the court … will have to call the consumer to come and present evidence [on income and affordability]. Nonappearance is a criminal offence … and [the consumer may be] held in custody until they appear."
Jonker is adamant that garnishee abuses do not reflect industry failure and that garnishees are an essential debt enforcement tool. He believes the industry is being tarnished by the acts of a few rogue elements, and largely unregistered and unregulated ones.
Many collection agencies complain about a "culture of nonpayment" in SA – the idea that many do not want to service their debt or actively seek to avoid paying.
Marina Short, CEO of credit bureau Consumer Profile Bureau, says the statistics support this. "To define a culture of nonpayment I would look at the payment behaviour of the consumers. [Many] consumers are in arrears by one to three months, and [the incidence of] adverse listings and judgments is still increasing. Every day our debt book is increasing.
"Payment behaviour patterns indicate that people are not servicing their debt. Either they cannot pay or they simply don’t want to pay," she says.
"We do see that many consumers are not educated, but there is also a portion of consumers that understand matters like debt prescription [writing off an unacknowledged debt].
"They understand what they can do to not have to fulfil their obligations to pay debt, and I think that is a challenge."
In 2016, the Office of the Credit Ombud received more than 14,300 complaints and inquiries and opened 4,123 disputes. According to its latest annual report, 69.4% of disputes were resolved in favour of consumers and more than R10m was recovered for consumers in 2016.
We looked at the orders and checked them against the court. The court had no record of them. That’s R1.5m a month being stolen from the dirt-poor by thieves,Clark Gardner
Summit Financial Partners
Clark Gardner, who runs Summit Financial Partners, which works with public and private payrolls to audit garnishees on the books, says the company’s biggest issue with garnishees is garnishees not passed by the court. "These are fraudulent orders," he says.
"I’ve just stopped 1,300 of these at a single payroll.
"We looked at the orders and checked them against the court. The court had no record of them. That’s R1.5m a month being stolen from the dirt-poor by thieves," he says.
"The man on the street who has had R500 deducted from his pay cheque every month for the last five years can do nothing about it. Nothing."
In 2015, Summit subsidiary QLink was awarded a tender to investigate and implement a long-term solution to EAO use on the public sector payroll.
It found that more government employees have EAOs than employees in other industries and that the average number of EAOs per employee was also higher.
A similar project at Anglo American — another QLink client — reviewed 3,508 garnishees, finding irregularities with 1,711 of them (48.7%). Querying and cancelling irregular EAOs saved Anglo staff more than R6.7m.
Summit frequently sees forged consent to judgment from large collection agencies, including one that has a debtors book of R1bn.
"If I have a copy of your ID and pay slip, I can go to court, make up a 58 [consent to judgment] and get a garnishee against you for the rest of your life. Just bad luck. Sorry, buddy," says Gardner.
"And these guys [the collectors] are billionaires…. It really is a crazy, crazy, one-sided game."
The national credit regulator declined to comment, directing all questions to the Department of Justice.
"EAOs have been in use as a debt-collection tool for many years and appear to be an effective method of debt-collection, provided they are done ethically and in accordance with the law," the department said in response to questions.
"The [Court of Law Amendment Act] mainly seeks to curb the abuses taking place with regard to judgments and EAOs in the magistrates’ courts," it said. "The act further gives effect to the Constitutional Court judgment in the Stellenbosch case relating to judicial oversight."
The Department of Trade and Industry did not respond to requests for comment.
Gardner says there was no happy ending for the debtors involved in the Stellenbosch case. "It was a good start, but we know it isn’t ‘case closed’ because I still see [fraudulent] garnishees every day."
• Reporting for this story is supported by Code for Africa’s impactAFRICA fund and the Bill and Melinda Gates Foundation.