Open season on despised salary attachment orders

A major overhaul of the emolument attachment orders process that has underpinned reckless lending is on the cards this year as court actions and the government aim to challenge this flawed system.

Any tightening up of the system, by which lenders compel employers to deduct debt repayments from wages, has implications for unsecured lenders who rely on it to service loans that have often been granted recklessly.

This week, the government joined to the growing list of parties taking a stand against the abuse of the system. Zodwa Ntuli, deputy director-general at the Department of Trade and Industry, said a joint committee representing it, the National Treasury and the Department of Justice, would soon announce moves to address the flaws in the system.

The issue has significant implications for the government not only as a regulator, but as an employer. In 2013, the University of Pretoria's Law Clinic estimated that more than 435000 employees in the private sector and 240000 in the public sector had attachment orders against their salaries .

An increasing number of employers have expressed exasperation that the system forces them to become debt collectors for unknown and often reckless lenders, but Anglo American Platinum has been the first employer to take action.

Last week, Amplats and seven of its employees announced that they had launched a legal challenge against the attachment orders. Amplats is challenging a law firm and a debt administration company, alleging that they are practising "unlawful" overcharging.

Amplats is also mounting a constitutional challenge against the fees law firms charge when acting as administrators.

This follows similar action launched by Stellenbosch University's Legal Aid Clinic in October last year. The clinic and 15 consumers have applied to the High Court in Cape Town to have attachment orders declared unconstitutional and unlawful. The respondents include 13 credit providers and law firm Flemix & Associates.

Bridge Loan, one of the 13 credit providers, is the source of most of the debt contracts sold on the Cambist platform. Cambist's former parent company, OneLaw, is entering liquidation. A successful challenge has serious implications for people trading on the Cambist platform.

Significantly, the departments of justice and trade and industry, which were also cited as respondents, have said they will not be opposing it.

And, keen to appear to be playing an active role in regulating the market, the National Credit Regulator announced this week that it was referring Ubank to the National Consumer Tribunal for breach of the National Credit Act for granting credit recklessly to consumers.