Ruling on garnishee orders to cut lending

Judgment to benefit the poor

Siseko Njobeni

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.

Mitigate risk

“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.