Got a garnishee? You’ve been overpaying, says Wendy
Updated | By Wendy Knowler
Friday the 13th of December was anything but unlucky for the more than a million South Africans whose take-home is reduced every month because of garnishee orders. What a Western Cape judge had to say on that day will bring massive financial relief, says Wendy Knowler.
Listen to today's show below or read the details under the podcast...
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.
So, happy Christmas to those affected, and please let me know how you go with getting that relief.
Get in touch with Wendy via her website or her Facebook page. Please note that Wendy is not able to personally respond to every email she receives. If she is able to take up your case, she will contact you directly. Here are other avenues for you to consider.
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