The misery and hardship caused by the debt collection processes in South Africa cannot be quantified. This is particularly so because the process is aimed at seizing the wages of the poorest of the poor. Much of the civil unrest in South Africa found its origin here.
A judgement was handed down in the Western Cape High Court on 8 July 2015 by Desai J in the matter between the Stellenbosch Legal Aid Clinic and 16 Others v Certain Organs of State and a string of micro lenders and debt collectors.
In my view this is one of the most important judgments in South Africa in the last ten years.
Let me explain why.
Upon reading the judgment, it becomes clear that what was being perpetrated by the lenders, debt collectors and their attorneys was an extremely profitable scheme, a racket. Here’s how it worked.
The debtor’s employer becomes compelled to deduct the sums specified in any Emoluments Attachment Order (EAO) that arrives at its door via the sheriff of the court and pay these sums over to the creditor. If the employer fails or refuses to do so, that employer will, on the face of it, be in wilful defiance of a court order which holds direct consequences for the employer. So they comply and pay these amounts to creditors every month. In South Africa, there is no statutory limit on the amount specified in the EAO and neither is there a statutory limit on the number of EAO’s which may be granted against a particular debtor.
In some instances, half of the debtor’s salary was wiped out every month, one had 3 EOA’s issued against her on the same day gobbling up almost 100% of her salary. These EAO’s by the clerk of the Magistrate Court, very often in a court situated in a remote province from where the employer and employee are, without any evaluation of their ability to afford the deductions, without considering whether it would be just and equitable (as required by the applicable legislation) and without any judicial oversight whatsoever.
Loans are extended with interest at 60%, with repayments exceeding 50% of their income. In one instance, one debtor’s affordability assessment indicates his sole monthly expense to be groceries of R50. For another, her only monthly expense was recorded as R100 for groceries per month.
For two other respondents, it was recorded that they have no expenses at all. Fancy that?
From the papers before the court, the following extremely disturbing practises became apparent:
• “Forum shopping” by micro lenders, debt collectors and their attorneys for “weak spot” Magistrates Courts located great distances from where the debtors resided and worked, effectively denying them any chance to defend themselves;
• the consents to judgment and “consents to jurisdiction” were obtained from uneducated and financially unsophisticated persons who were often duped and sometimes coerced into signing these documents;
• this caused these persons (cleaners, domestic workers, security guards, seasonal farm workers) to get caught in a never ending spiral of debt and dire poverty;
• its clear that the aim of the loan or initial credit, granted under circumstances that fall foul of the National Credit Act, is not for the debtor to make payment in the normal course, but rather that they are expected to default. And default they will. Upon default, which is almost a certainty, the loan capital, usurious interest, attorney and own client legal costs, collection commissions and other charges will be accelerated and all become due in one go. It makes sense, for the scheme to work, that the debtor must default so that the creditor can bypass the debtor, judicial oversight and get access to what is normally the poorest of the poor’s only means of survival on this earth: their salary or wages.
What the cleaner or domestic worker is able to take home to their family after months of labour is anyone’s guess. The consequences of this scheme is diabolical, the effect it has on the social fabric of a frail country like ours is beyond measure. Millions of South Africans are still going through this as you are reading this piece.
It doesn’t take a lot of imagination to figure out how profitable the scheme is. Flemix, one of the debt collectors in this case, stated in its affidavit that is has “150 000 active cases”, the total book value of these amounts to R1 597 585 832 ( that is, over one and a half billion rand).
Over one and a half billion rand to be collected from security guards, cleaners, tea ladies, farm and domestic workers.
Desai J made the following order:
1. The emolument attachment orders issued against the Second to Sixteenth Applicants in favour of the Fourth to Sixteenth Respondents and set out in annexure A to the Notice of Motion, are declared to be unlawful, invalid and of no force and effect.
2. It is declared that:
2.1. the words “the judgment debtor has consented thereto in writing” in section 65J(2)(a) of the Magistrates’ Act 32 of 1944 (“the Magistrates’ Court Act”) and;
2.2. section 65J(2)(b)(i) and section 65J(2)(b)(ii) of the Magistrates’ Court Act,
are inconsistent with the Constitution of the Republic of South Africa Act, 1996 (“the Constitution”) and invalid to the extent that they fail to provide for judicial oversight over the issuing of an emolument attachment order against a judgment debtor.
3. It is declared that in proceedings brought by a creditor for the enforcement of any credit agreement to which the National Credit Act 34 of 2005 (“the National Credit Act”) applies, section 45 of the Magistrates’ Courts Act does not permit a debtor to consent in writing to the jurisdiction of a magistrates’ court other than that in which that debtor resides or is employed.
4. The First to the Third Respondents, the HRC, the Law Society and the Advice Offices are urged to take whatever steps they deem necessary to alert debtors as to their rights in terms of this judgment.
5. The Eighteenth Respondent’s application to strike out is dismissed with costs.
6.The Seventeenth and Eighteenth Respondents’ counter-applications are dismissed with costs.
7. Fourth to Eighteenth Respondents (excluding the Twelfth Respondent) are ordered to pay the Applicants’ costs, including the costs of two counsel, jointly and severally.
8. A copy of these proceedings are to be forwarded by the First Applicant to the Law Society of the Northern Province for it to determine whether Ms AE Jordaan and Flemix & Associates Incorporated have breached their ethical duties particularly with regard to forum shopping to secure emolument attachment orders.