Midrand - Consumers are estimated to be overcharged by, on average, R1 000 per garnishee order. With around 3 million garnishee orders currently active, the result is in an alarming figure of R3bn being over-charged and, effectively, stolen from consumers over the full span of the existing garnishee deductions.
Let’s start at the beginning: a garnishee order is a Court order that compels an employer to pay debt instalments straight from an employee’s pay slip to one of their credit providers. The debt instalment is therefore deducted from the consumer’s gross salary, and reduces their take-home pay.
This practice may seem harsh but keep in mind that, as recently as the mid-nineteenth century, consumers who defaulted on their debts could be thrown into “debtors’ prisons” where they – or their family members – would effectively work as slaves until their debts were settled (if ever).
Thankfully this practice has been done away with and, in modern times, the worst your credit providers can do is sell off your assets or take a cut of your salary.
It helps to keep it in perspective, although a consumer with multiple, or excessive, garnishee deductions could end up literally going to work just to pay their debts, which may feel too close to modern day slavery for comfort.
The disturbing level of abuse through garnishee orders has recently shocked the credit industry; so much so that the Banking Association of South Africa announced their intention to stop banks using garnishees to collect on debt. This statement was soon backpedalled, but there is good reason for concern by the industry.
So where does the problem lie, and how can we fix it? We believe garnishee abuse is prevalent for three reasons:
1. Consumers’ lack of understanding of the correct process
2. Magistrates Courts’ poor regulation of the garnishees
3. Exploitation by unscrupulous lenders and collectors
The correct process
When a consumer defaults on debt payments, there is a clear process that credit providers are required to follow:
1. A Letter of Demand must be issued by the credit provider
2. If the consumer fails to respond, the credit provider will issue Summons
3. The consumer can choose to respond to the Summons with a valid defense, admit to the debt and negotiate payment arrangements or ignore the Summons and hope for the best (the most common option)
4. If the consumer ignores the Summons, the credit provider can apply to Court for Default Judgment, i.e. the amount claimed is automatically rubber stamped by the Clerk of the Court
5. Before a garnishee order is finalised, the consumer will be notified of a Court date on which they can appear in Court to confirm how much they can afford to pay
6. If the consumer doesn’t respond to this notice, the amount submitted by the credit providers is rubber stamped in their absence by the Clerk of the Court.
7. The garnishee order is then served on the employer, who is compelled to carry it out.
Examples of abuse (& savings) This is an example where R12 142.63 was written off the outstanding balance on a garnishee order when a collector was caught charging excessive interest.
The collector had contravened the In Duplum rule in terms of section 103(5) of the National Credit Act, which states that no more interest or fees may be charged once the total interest and fees charged on an account in arrears is equal to the outstanding balance owed when the consumer first defaulted.
In other words, this credit provider had charged more than R12 000 additional interest after the consumer’s debt had already doubled.
This is an example that is as disturbing as it is exciting – we managed to save a consumer R306 413 by challenging unjustified charges added by the attorney.
The consumer's house was sold on auction for R240 000, but he still owed the bank a shortfall of R70 000. The shortfall was collected as a garnishee order from his salary, but somehow the attorney inflated the outstanding balance to R389 913 (which was passed by the Clerk of the Court without question).
At R300 per month, this consumer would have been paying off a house he no longer had for the rest of his working life if the attorneys at 6cents hadn’t picked up on it.
If the problem lies mainly with uneducated consumers, lackadaisical Courts and unscrupulous lenders and collectors, here is how we can go about fixing the garnishee problem:
Consumers should educate themselves on correct collection processes:
* If nothing else, consumers should always act on letters or legal notices from credit providers and collectors. This way, they have more control over the outcome of the process and can protect their interests as far as possible (by, for example, submitting a budget to show what they can afford to pay).
* Even better, consumers should keep their debt payments up to date, avoid unnecessary debt, and consult a debt counsellor if they are having trouble keeping up their payments.
* The Court process should be amended to require all garnishees to be handed down by a Magistrate, rather than simply rubber stamped by a Clerk. This should filter out any fraud happening at Court level and force collectors to submit reasonable and legally sound garnishee requests.
* Consumers and employers should actively be on the lookout for potential garnishee irregularities and refer these to experts like 6cents who can assist in holding unscrupulous lenders and collectors accountable.