Got a garnishee? You’ve been overpaying, says Wendy

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Garnishee orders, or “garnishees” as most people refer to them as - incorrectly, because the legal term is an emoluments attachment order - have a long, and highly controversial history in this country.

It’s been a very easy way for credit providers and their collectors to get their money out of debtors, with massive costs, interest and legal fees added.

That’s because a “garnishee order” is an order issued by a firm of attorneys to a company’s HR department, ordering them to deduct a certain amount every month from X employee’s salary and pay it over to them in settlement of a debt to a credit provider of some kind - very often a company providing micro loans to the poorest of the poor who have nowhere else to go when they need to borrow money.

So the debtor does not have an option not to pay.

The money lenders and their collectors  have been relying on a self-serving interpretation of the National Credit Act (NCA), to burden debtors 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 from now on, if you default on your debt repayments, owing R5,000, for example, the most you will ever have to repay, with interest and costs, is R10,000.

That’s huge, because up to now, the industry has interpreted Section 103(b) of the NCA as meaning that once there’s been a judgment iro 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 - four times the original debt.

Among the respondents in the case - brought by Summit Financial Partners and the Stellenbosch University Law Clinic - was Bayport Financial Services, money lender and the biggest user of “garnishees” on the public service payroll.

There were nine applicants in the case, and their stories are typical of garnishee exploitation:  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 judge was scathing about the way the industry has 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.

“They are running up costs with what appears to be no concern for the consumer.”

Here’s what the judge ordered:

*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.

Now that last bit on its own is powerful, says Summit Financial Partners CEO Clark Gardner.

“It’s an easy win for consumers  - debtors should tell their HR departments stop paying and tell the collector to prove that their legal fees have been taxed. They can do that by means of a court document - a bill of costs.

“But their fees haven’t been taxed so they can’t charge those legal fees. And it’s too expensive for them to go back to court and get those fees taxed.

“Collectors have ridden the band wagon - it’s been a case of the rich  stealing from the poor. And those days are over, Gardner said.

Gardner puts the number of people with “garnishees” on their salaries or wages at 1,3 million.  And he predicts that a year from now that number will be down to just 300 000.

“That’s because the cost of recovering those mostly small debts will be far too great without them being able to load the debt with all those legal fees,” he says.

So those who are paying garnishees should work out what they owed when they defaulted, and double that amount. Anything more than that which they have paid via garnishee - and remember that’s capital, interest, collections costs and legal fees, the lot - they are owed as a refund. Gardner advises those people to ask their HR departments to ask the attorney firm which got the garnishee order to do the refund.

He’s worked out that on average, garnishee payers will score R5000 in savings or refunds, potentially releasing more than R4 billion into the consumer economy.

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