A Christmas present for those with garnishees: An end to rampant exploitation
Relying on a self-serving interpretation of the National Credit Act (NCA), SA’s debt collection companies have for years burdened consumers with crippling collection costs.
Acting judge Bryan Hack put an end to that in the Western Cape High Court on Friday, with a declaratory order effectively limiting a consumer’s total debt repayment to double the original debt.
So if you defaulted on your debt, owing R5,000, the most you will ever have to repay, with interest and costs, is R10,000.
Up to now, the industry has interpreted Section 103(b) of the NCA as meaning that once a judgment was brought against a debt, it became a whole new debt agreement; a judgment debt.
And they felt entitled to double the pre-judgment debt amount again, meaning the person could end up paying R20,000.
With employers being forced to deduct debt repayment amounts from their employees' salaries every month, in terms of an emoluments attachment order, commonly referred to as a “garnishee”, creditors and their collectors are assured of getting their money.
But the system has led to widespread abuse of consumers in the way the “garnishees” have been granted and executed: until 2017, many workers had so many garnishees on their salaries they got no take-home pay. They are now limited to 25% of a worker’s pay.
Among the respondents in this case was Bayport Financial Services, money lender and the biggest user of “garnishees” on the public service payroll.
Speaking on Primedia’s The Money Show on Friday night, Summit CEO Clark Gardner said the judgment had put a stop to any current and future abuse of garnishees.
“Big industry had no incentive to stop the abuse,” he said. “Our biggest opposition was the Legal Practice Council (which regulates the affairs all legal practitioners in SA).
“We did their job.”
Among the nine applicants in the case, one borrowed R5,600, has paid R13,000 and still owes R13,300, and another borrowed R16,000, has paid R19,700 and still owes R13,800.
“The escalation of the indebtedness as a result of (the applicants’) costs suggests the credit providers are not even paying lip service to the need for fairness and equity,” the judge said.
“They are running up costs with what appears to be no concern for the consumer.”
He ordered that:
- Collection costs, as defined in the NCA, include legal fees, regardless of whether they are charged before, during or after litigation;
- The limitation that interest, fees and collection costs cannot exceed the balance of the debt must apply at all times, regardless of whether a judgment had been granted; and
- Legal fees may not be claimed until these had been agreed upon or taxed.
The judge ordered that an independent expert be appointed to recalculate the amounts due by the applicants in the case, but the declaratory order also applies to all consumers who’ve had legal action taken against them by credit providers.
Gardner urged employers to stop making “garnishee” deductions in the case of employees who had already paid more than double the amount they owed when they defaulted.
He estimated that at least R2bn would be refunded to affected consumers in the next six months.
In his ruling, Hack was scathing about the way the industry had been exploiting debtors.
“Creditor providers have no incentive to look after consumers or, to be more direct, not to exploit consumers,” he said. “Because they can utilise their resources to pursue consumers who default with a degree of impunity, knowing that they will ultimately, even if it takes a considerable time, recover all that is owed to them, including their very substantial legal costs incurred.”