JOHANNESBURG, PRETORIA – Government is aware of the significant growth in unsecured lending and the abuse of recovery tools by lending institutions and collection specialists.
Finance Minister Pravin Gordhan stated in his budget speech that government is “concerned by the abuse of emolument attachment orders that has left many workers without money to live on after they have serviced their debts every month.”
He said government is in discussion with the National Credit Regulator (NCR), the Department of Justice and banks to ensure that the lending market remedies its behaviour.
Gordhan added that employers should assist their workers to manage their finances and to interrogate all emolument attachment or garnishee orders to ensure that they have been properly issued.
However garnishees are court orders and employers cannot simply ignore these legal instructions without having them audited and verified at some cost.
He also urged law societies to take action against members who abuse the system.
Just following his announcement, the office of the Credit Ombudsman announced that a special task team has been established, which includes a wide range of industry bodies, to deal with garnishee abuse.
Credit Ombudsman, Manie Van Schalkwyk said independent research by the University of Pretoria has so far highlighted a number of areas of weakness in the system including issues of misrepresentation by collecting attorneys, forgery of signatures, unreasonable installments and high and unnecessary costs.
“These issues coupled with broader problems such as a lack of basic financial and legal literacy skills amongst consumers; insufficient communication between credit providers and employers; and a lack of knowledge amongst clerks of the court, as well as amongst employers are just some the reasons that the current practice is not sustainable,” he said in a statement.
“There is also an absence of appropriate administration systems and judicial oversight and control.”
Meanwhile Jan van Rensburg, head of the Law Society of the Northern Provinces, has told Moneyweb that his office has received draft amendments to some of the laws governing emolument attachment orders.
A document for proposed amendments to the Magistrates Court Act specifically addresses sections 57, 58 and 65 of the Act. These sections concern the widely abused consent to jurisdiction and procedures involved in securing garnishees.
Chief amongst the proposals involves taking away the right to authorise a garnishee order from the clerk of the court and placing that responsibility under the court magistrate, said Van Rensburg.
Law Societies have come under heavy criticism for failing to act on garnishee abuse.
After receiving documents relating to the alleged abuse of garnishee orders by five separate legal firms uncovered during a Moneyweb investigation the Law Society of the Northern Provinces at first committed to investigate the cases but then backtracked stating that it would require affidavits to be filed by the individual defaulters concerned.
“The criticism is very general,” said Van Rensburg “we can only respond once we have got a complaint”.
Critics “make a general assumption that all this work is being done by attorneys … the consent to jurisdiction can be done by the creditor himself, they can collect these judgments and hand it in to the courts.
“The problem is wider than this.”
He did, however, indicate that “we have certain complaints which are being investigated” currently.
One of the firms being investigated includes Coombe and Associates which has been exposed during a Moneyweb investigation.
The Society has previously attacked the NCR for failing to curb indebtedness amongst South Africans and for allowing micro-lenders to exploit the financially illiterate.
The NCR and the Society also hold differing opinions on the interpretation of the in duplum provision of the National Credit Act (NCA), a conflict blamed for allowing much of the abuse to perpetuate.
Abuse of in duplum has seen the amounts charged through garnishee orders exceed ten times the amount of the original loan or outstanding debt.
Following a sustained Moneyweb investigation the NCR instituted a range of investigations into garnishee and insurance abuse including a swoop of micro-lenders operating on the Rustenburg platinum belt in September last year.
Trade and Industry Minister Rob Davies has since linked lending and collections abuses to strike activity.
The Banking Association of South Africa has issued a statement in which member banks committed to stop using garnishee orders and to find ways of addressing the problem
However, key signatories to that statement have since told Moneyweb that they continue to use garnishee orders.
At a specially convened Debt Summit in November last year the National Treasury threatened abolish the entire garnishee system.