'Salary muggers' under the cosh

17 February 2015 - 02:16 By Philani Nombembe and Jerome Cornelius
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A group of security guards, cleaners and farmworkers from Stellenbosch could rewrite the law on microlending.

They are applicants in a groundbreaking class action by the Stellenbosch University Legal Aid Clinic that began yesterday.

The clinic has hauled 14 micro-lenders before the Cape Town High Court for allegedly deceiving court clerks into issuing emolument orders (commonly known as garnishee orders) that deduct as much as 50% of debtors' salaries.

The case is expected to have far-reaching implications for unscrupulous credit providers.

The law clinic wants sections of the Magistrates' Court Act that "permits a clerk of court to authorise and issue a court order attaching a debtor's earnings" declared unconstitutional.

The National Credit Regulator and the ministers of justice and correctional services and of trade and industry are cited as respondents. The SA Human Rights Commission has been admitted as a friend of the court.

The clinic's counsel, Anton Katz SC, said the debtors include farmworkers, cleaners and security guards who "support their families on salaries of between R1200 and R8000 a month".

The microlenders had failed to conduct proper "affordability studies" before granting the loans, some of which carried interest rates of up to 60% a year, he said.

"The ability of people to earn an income and support themselves and their families is central to the right to human dignity. Any legislation that deprives a person of their means of support or impairs the ability of people to access their socioeconomic rights will constitute a limitation of the right to dignity," said Katz.

At the centre of the controversy is law firm Flemix and Associates, which helped the 14 microlenders collect debt.

Katz said the firm had advised its client to apply for garnishee orders in "alien jurisdictions", including Beaufort West, Kimberley, Johannesburg and Hankey. This was done to avoid certain "restrictions" at the Stellenbosch Magistrate's Court. He urged the court to report the firm to the law society.

"This undermines the entire South African court structure," said Katz. "[It is] trickery, this process is frowned upon as it impedes on fairness."

Judge Siraj Desai ordered that the debtors' names not be published.

One of the applicants, a 44-year-old lay Aids counsellor, said she had been pressured into signing documents that resulted in R1015 of her R5000 salary being docked every month.

She later learnt that an entity known as Mavava Trading 279, from which she had never received a loan, had also obtained a garnishee order against her via the Johannesburg Magistrate's Court in 2013. Mavava and SA Multiloan are also respondents in the case.

In court papers, Minister of Justice and Correctional Services Michael Masutha denies that sections of the Magistrates' Court Act are unconstitutional. He says making magistrates responsible for the issuing of garnishee orders would overburden the courts.

Experts said yesterday that clarity on the law was needed.

Clark Gardner, CEO of financial investment company Summit, said: "There are between 2.5million and 3million garnishee orders in circulation, and many people have more than one. Outstanding debt, which stands at R75-million, is getting worse.

"But the magistrate's courts are pulling up their socks. It's getting harder for debt collectors."

He said the problem was a lack of enforcement. "The law is only as good as it is enforced. The court issues on a debt, but there's no one telling them [the credit providers] when to stop, so the orders often don't stop."

Jurisdiction was also a problem.

"There are no restrictions on where the garnishee can be applied, making it harder to stop. The consumer doesn't have authority to dispute [the order], because the court is not in their jurisdiction," Gardner said.

Deputy credit ombudsman Reana Steyn said: "The fact is that in many instances the correct legal process was not followed in obtaining the [garnishee orders]. Consumers struggle to obtain statements and information about their indebtedness. Exorbitant costs and fees are at times added to accounts."

She said the Marikana commission had put garnishee orders in the spotlight.

Research by the Pretoria University Law Clinic in 2013 showed that the private sector with the highest number of employees with garnishee orders was the mining industry - 12.9% of the workforce.

Steyn highlighted the importance of the current court case for reform. "From what our office has observed there has been an increase in the number of complaints from consumers in this regard."

Paul Slot, director at Octogen debt counsellors, said the case was testing the current practice - and abuse - of a law.

"If you play a game for too long, you forget the rules. The magistrate's court process was written long ago. People have started to interpret the act in different ways. It [this case] will stop the abuse of the process. It will definitely have an impact on debt collectors," he said.

The court case continues today.

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