Judgment to benefit the poor
THE CONSTITUTIONAL Court judgment on garnishee orders was likely to reduce the risk appetite of lenders and could see “risky” individuals struggle to obtain finance, Fincheck chief executive, Michael Bowren said yesterday
On Tuesday the court ruled that aspects of the enforcement of garnishee orders were unconstitutional.
Various commentators have hailed the clampdown on the garnishee orders, formally known as emoluments attachment orders, as victory for the poor.
“A garnishee order allows the creditor to either take property from the debtor even if the debtor does not own the property Or the creditor can take part of the debtor’s wage as soon as it hits the debtor’s bank account. In essence, the debtor will not ‘see’ this portion of their wage.
“Lenders use garnishee orders to mitigate their risk. For the creditor or borrower to protect themselves, they need to ensure they borrow money from an accredited and legal credit provider.
“If this is done, their chances of having an unfair garnishee order placed against them should be significantly decreased,” said Bowren.
Fincheck is an online financial and loan comparison website and gathers cost information from South Africa’s big banks and smaller micro lenders.
“The outcome of this judgment will determine the channels lenders are allowed to take to reclaim the funding they lent out.
“This is likely to decrease the lender’s risk appetite while clients who are seen as higher risk may not get the finance they want,” said Bowren.
The court’s ruling would help thousands of over-in- debted consumers, who were the victims of either fraudulent garnishee orders or who were the victims of reckless lending, according to Neil Roets, the chief executive of debt management company Debt Rescue.
Roets said that a substantial portion of indebted consumers who sought help from his company by going under debt review were the victims of questionable garnishee orders.
“I believe that the judgment is a step in the right direction to rethink several aspects of the unsecured lending industry in South Africa.
“We know from many media reports and from first-hand experience that many emolument orders were issued at certain specific courts where corrupt clerks of the court were happy to issue orders to micro lenders or other creditors in return for bribes.
‘The judgment is a step in the right direction to rethink several aspects of the unsecured lending.’
In some instances, signatures were outright forgeries. The fact that a magistrate now has to be involved in the process is going to go a long way to eradicate many of these corrupt practices,” said Roets.
He said it was common knowledge in the credit industry that there were a handful of courts where garnishee orders could easily be obtained from corrupt officials.
He said the judgment did not mean that all emolument orders were null and void.
Instead, where consumers believed that they had been deceived by creditors into signing documents that they did not understand or if the money they were lent amounted to placing them in a state of over indebtedness, a magistrate could declare the order null and void, said Roets.
Roets said he was concerned that there was insufficient capacity in most courts to deal with the thousands of garnishee orders issued monthly.