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Top law firm uncovers massive garnishee abuse

Major ENS audit shows 59% of garnishees are irregular.

JOHANNESBURG – A forensic audit has found 59% of the garnishee orders effected against the payroll of a major multinational employer operating in SA, are illegal or invalid.

The audit, undertaken by law firm Edward Nathan Sonnenbergs (ENS), was conducted on a sample of 45 000 geographically disperse low-income consumers and is believed to be large enough to draw reliable statistical inference regarding the state of garnishee irregularity in SA at large.

It describes a rampant, systematic abuse of what could be millions of the most financially vulnerable of SA’s citizenry, the socio-economic consequences of which would be severe.

“You have attorneys and judgement creditors who are abusing a system to maximise their financial returns. They are pushing the letter of the law to the extreme and beyond,” says Peter Allwright, senior manager in forensics at ENS.

Of the 45 000 employees, 13 000 had garnishees effected against their salaries. On average the affected employees had 2.3 garnishees effected against them. Some employees had 12 garnishees.

Garnishees are court orders which compel employers to deduct amounts directly from an employees’ salary until alleged overdue balances are cleared.

Typically the invalid garnishees had “multiple failures” in terms of their legality or authenticity.

Collections abuse uncovered by ENS includes among others:

  • 39% of the garnishee deductions were being made against non-existing or cleared loan agreements;
  • 16% of the orders had no outstanding balance “meaning that the employee was going to pay off the order until they died or resigned”; and
  • 10% of the orders were charging monthly payments which were less than the monthly interest, also meaning that they would never be repaid.

Widespread fraud has also been uncovered that includes garnishees without valid case numbers or case documentation, as well as defrauded signatures and/or court stamps.

As garnishees are court orders which need to be granted through the authority of a magistrate following due legal process this would imply that the enshrined rights of consumers have been critically undermined.

According to Allwright, this abuse has resulted in “hundreds” of instances where employees are netting a zero paycheque.

Lender abuse also includes forcing borrowers to sign garnishee orders when the loan is granted and double charging borrowers for the repayment of a single loan through a debit order, both of which are illegal. Allwright explains that these tools are used the moment a consumer defaults on a payment, circumventing legal due process.

“Some of them [lenders] get repayments both from the debit and from the garnishee,” he says.

Moneyweb has been investigating garnishee abuse since the Marikana uprisings with links drawn between the recent spate of economic unrest. The impact of lending abuse on consumer over-indebtedness and the link to recent strike action has since been confirmed by Trade and Industry Minister Rob Davies.

Much of the abuse uncovered by ENS mimics the irregularities uncovered by Moneyweb but the ENS audit is the first to provide statistical evidence showing just how endemic the problem has become.

“It is the most terrible project I have ever done in terms of the social impact on the broader population, in terms of the impact on people who are least equipped to deal with the issue because they don’t have the financial resources and they don’t have knowledge.

“It’s abuse, it’s exploitation of the most vulnerable consumers and that is the saddest part,” he said.

In light of SA’s rampant levels of unemployment, over-indebtedness and credit impairment “the socio-economic impact of the abuse is huge … Those employed (consumers) with garnishees have take-home salaries which are deducted to such a low level that they can’t survive and now they have five dependants that they have to support … What do they do”, asks Allwright.

“There is a cascading effect across the whole economy and the whole of our society. It’s just terrible”.

Image source: Staying Afloat from Bigstock

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