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How my salary became zero after a garnishee took effect

University of Pretoria’s (UP) Law Clinic raises serious debt collection concerns.

Research being conducted by the University of Pretoria’s (UP) Law Clinic has uncovered instances where South Africa employees are taking home a zero pay-check after the garnishee orders imposed on their salaries have taken effect.

The examples describe the extreme result of lending abuse and highlight systemic problems with processes involved in debt collection.

These issues are seen to contribute to a chronic over-indebtedness among SA’s workforce, according to Charlotte Van Sittert, an attorney and researcher at UP’s Law Clinic.

Documents provided by Van Sittert to Moneyweb show one employee with a monthly salary of R6 580 being charged R4 727 towards the repayment of his debt through garnishees.

Once other deductions are affected he netts a take-home pay of “zero”.

Garnishees are court orders obtained by collection attorneys on the instruction of credit providers, they compel employers to deduct amounts directly from the salary of employees.

Moneyweb has heard of a host of similar instances from a range of sources dealing with garnishee orders.

Sources on-the-ground at Marikana have also described instances where striking miners have netted zero paychecks.

However, the UP research provides the first conclusive, documented, evidence of this type of extreme defaulter abuse.

The research raises further concern regarding an apparent grassroots rot in the unsecured lending market due to the abuse of the garnishee system and through apparent reckless and otherwise illegal lending practices on behalf of unsecured credit providers.

The fact that workers are having their entire paychecks deducted through garnishees implies that either the lender or collection entities involved have failed to ensure that the borrower could afford the loans granted and his post-default repayment obligations.

Where such abuse is found to be at the hands of the credit provider the practice would constitute reckless lending which is outlawed by the National Credit Act (NCA).

Where collection attorneys have imposed unaffordable repayment amounts through garnishees the problem can be traced to a shortcoming in the laws describing the processes involved in securing garnishees, according to Van Sittert.

Under the Magistrates’ Court Act a collection attorney has no legal obligation to assess the affordability of a garnishee by means of a financial assessment of the defaulter prior to applying for it through the courts.

The applications for a garnishee filed by the attorney which describe the instalment amounts to be repaid as well as the nett outstanding debt (including legal and other fees) are not served on the employer or the employee but rather the clerk of the court.

This means that the employee will only become aware of what he is being charged once the garnishee is affected on his salary.

Where the legal fees imposed are excessive as described previously in a Moneyweb investigation or where the defaulter has other active garnishees imposed this can lead to unaffordable amounts being deducted through garnishees.

In turn this can force defaulters to secure additional loans in order to cover their living expenses, thus pushing them into irrecoverable debt traps.

“The fact that the practice is legal within the prescripts of the law does not make it right,” said Van Sittert.

“With regards to the fees of attorneys, they can charge fees and they will immediately tell you they can legally charge the fees.

“My argument is the fact that it is legal does not change the fact that it contributes to the problem of over-indebtedness and therefore I say that we have to look at this matter of costs because somewhere something has gone wrong”.


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Timeline
2012/09/16 Platinum miner repays R11690 on R1000 loan
Moneyweb publishes garnishee orders which show lawyers to be abusing loan defaulters by charging fees in excess of ten times the outstanding loan.
2012/09/19 Excessive debt-collection fees reviewed
The Law Society of the Northern Society commits to investigate cases of excessive abuse of garnishees. It would later retract on this commitment.
2012/09/20  SA workers trapped in debt hell
Moneyweb reveals as much as 40% of the income earned by SA’s workforce is being directed towards the repayment of debt.
Law Society blasts Credit Regulator
The head of the Law Society of the Northern Provinces has attacked the National Credit Regulator (NCR) for failing to curb rampant indebtedness amongst SA’s workforce and for allowing microlenders to exploit the financially illiterate marking the beginning of a dispute relating to the interpretation of the National Credit Act (NCA).
2012/09/26 Lawyers’ debt collection fees could be illegal
National Credit Regulator says lawyers charging outside of the law. 
2012/09/27 Credit regulator “shocked” by loan abuse
Tells Moneyweb it will investigate garnishee orders after reports that a platinum miner repays R11690 on R1000 loan
2012/10/01 Financially illiterate miners debt shocker
Moneyweb reveals chronic indebtedness, exacerbated by alleged legal malpractice, is being linked to the recent labour unrest to have swept through SA’s mining sector.
2012/10/08 Moneyweb reports show that it is difficult to so how far reaching SA’s debt problem is Unsecured lending: What the data is not telling us
2012/10/09 Unsecured lending: What the data is not telling us
It is unclear how indebted those earning less than R15 000 per month are. 
2012/10/09 Credit Regulator swoops on Marikana micro-lenders following the above reports
2012/10/10  Capitec, Abil, FNB being probed
Capitec and FNB deny they are part of an official probe. The NCR has been conducting a review of players in the unsecured lending space (including African Bank) for a number of months now, Abil says.
2012/10/11 Davies links Marikana violence to indebtedness
Trade and Industry Minister Rob Davies links the abuse uncovered by Moneyweb to levels of indebtedness amongst Marikana miners which in turn served as a catalyst for strike violence. In a radio podcast with Alec Hogg he commits to look into the NCR’s attempt to deny it named the major lenders it had investigated.
2012/10/17 Finance Minister Pravin Gordhan tells banks to stop exploiting the poor
Unsecured lending to low-income people is a “problem”, he warns
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