Lending abuses under the spotlight

26 April 2015 - 02:00 By ANN CROTTY

In a move that will be a game-changer for the unsecured lending industry and also affect wage negotiations, the National Treasury will launch an intensive investigation into the extent and abuse of emolument attachment orders (EAOs) in the public sector. Almost 16%, or 360000, of the 1.5million public-sector employees have substantial chunks of their pay deducted every month before it is paid into their bank accounts because of EAOs.EAOs are court judgments microlenders get to enforce repayment of debt. Employers are bound by the law to deduct money owed from employees' pay. But there is widespread abuse of the EAO system.Treasury's Ingrid Goodspeed said the government was expecting substantial savings for employees as abuse is rooted out."We're hoping the service provider will be able to provide us with a handle on how many of the EAOs have been issued illegally because the wrong jurisdiction was used or [the orders] were just fraudulently issued. We're also hoping to see the extent to which employees have been repaying in excess of the in duplum rule [which limits interest and other charges to 100% of the loan amount]."Goodspeed said there was some discussion about an outright ban on EAOs, "but there are bad-faith borrowers, and credit providers should have some way of getting back money from them".One industry expert said that unsecured lending could be reduced by 20% within 12 months as fraudulent debt claims were challenged, amounting to hundreds of millions of rands.Friday was the closing date for interested parties to respond to Treasury's call for a service provider to investigate the extent and abuse of EAOs in the public sector and to implement a solution for the management of EAOs.Nicky Lala-Mohan, newly appointed Credit Ombud, welcomed Treasury's action, calling it a step that "would change the industry".On a more cautious note, the Black Sash's Elroy Paulus described the move as encouraging, but said government also needed to increase the power of regulators. "And the law must provide for the criminal prosecution of people found contravening the National Credit Act."..

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