Con Court Upholds Spirit of W Cape Ruling On ‘Garnishee’ Orders
When a group of poor farm workers were hit with a series of “garnishee” orders that left them penniless at the end of each month they decided to get help. A class action court case ensued with the banks and collections agents like the notorious Flemix on one side and the poorest of the country on the other with the help of the University of Stellenbosch Legal Aid Clinic.
With the fate of the entire standard collections process on the line (as well as the longevity of those firms who collect solely through EAOs) the battle soon heated up. Civil rights groups grew interested and the country watched as a real David and Goliath situation unfolded.
‘it is really an Emoluments Attachment Order or EAO…but that doesn’t sound as cool’
A so called ‘Garnishee‘ Order (actually people just call it that. They are really Emoluments Attachment Orders or EAOs…but that doesn’t sound as cool) enables a credit provider to take money from a person’s salary before they get paid.
First Heard In the W Cape High Court
The matter was heard in the Western Cape High Court where the ruling went the way of the consumer. The Court ordered that an EAO could not be granted without the proper oversight of a Magistrate or judge and that if naughty collections people tried to get EAOs somewhere else in the country rather than where the consumer works of lives then these were not valid.
How Garnishee Orders Got a Bad Name
Collections companies (the outside lawyers for the banks and credit providers) have a terrible reputation for “forum shopping” at courts around the country. This is where they find a friendly court that will normally just give them what they ask for without too many questions. Particularly a court where a clerk of the court (rather than a Magistrate) might just stamp the draft ‘garnishee’ order quickly in the back room. Some even accuse the collections agents of giving bribes to these clerks to do so. The applications to take part of a consumers salary would then receive a so called rubber stamp. No consideration would be given to if the consumer could afford to have that particular amount taken off their income each month and still cover their basic needs.
The issue came to light in a large way after the violence and deaths in a small mining community in SA called Marikana. Many blamed the fact that the miners had over committed to too much credit and had not been able to pay. Rather than advise consumers of the debt review process the banks had unleashed vicious collections attorneys who had ‘garnished’ every last cent of many workers salaries.
Hearing Matters Far Away Hurts Consumers
When a ‘garnishee order’ is granted in a far away province it is very, very difficult for a poor consumer to ever get to that court to defend/query or ask that the order be changed. This has basically meant that most consumers have never been able to change these EAOs. To make matters worse it seems as if many consumers have had more money taken off their salaries than the law allows. The law specifically prohibits a credit provider to take off more than double what is owed when the consumer starts missing payments. This is know as NCA Section 103(5) in duplum. Sadly many consumers have paid for years and years way beyond this double up limit set by the law but since the court is so far away they can never get to it to have the order rescinded unless they somehow can pay an attorney in that area to go to court for them. The constitutionality of this was then a big issue.
When the W Cape Court ruling came out it called into question the entire normal way credit providers and collections agents were operating. Some wondered if it was the death of ‘garnishee orders’. For many months few if any EAOs were granted in the W Cape as courts receiving applications asked if the collections agents had researched the consumers situation and knew that they could afford to repay the amount asked. Few ever do. They normally just stick a figure on the draft order and plan to collect their commission portion on the amount. Other provinces also began asking these hard questions and the banks panicked. They commissioned their legal experts and rallied important government departments to challenge the ruling leading to it finally being heard at Constitutional Court.
The Constitutional Court Ruling
The Constitutional Court ruling does not copy the W Cape high Court ruling 100% but it differs only slightly. The ruling amends some of the wording and grammar in the Magistrates Courts Act 1944, particularly section 65J of the MCA which will have a big impact on how things are currently done. [ see below at the end of the article]
The ruling now emphasizes the need for an EAO amount to be appropriate and issued after everyone is satisfied it is just and equitable. This should then mean that people are not left with less than they need each month to cover their basic reasonable costs and calls for some investigation into the circumstances and figures involved.
The ruling also stresses that a magistrate or judge must hear any EAO matter that is sent to a court and that they would be involved in a ruling on the matter and not a court employee other than the Magistrate. The ruling states that such orders require judicial oversight.
Also discussed was the process of consumers signing that they would automatically consent to judgement or that they would allow the matter to be heard in a court far away. Though the Con Court said they saw the possible benefit to the credit providers from this the risk of taking away a consumers right to appear at court was just too great to ignore. It was ruled that the consumer must be able to attend and defend if they wish and so the court must be where they work or live. As such consumers should not be asked to sign away this constitutional right. The ruling however does not change a consumers right to consent to making a payment via an EAO that is then submitted to a court.
This means that not only are the many consumers who were part of this legal actions ‘garnishee orders’ invalid but that thousands of other current applications for ‘garnishee orders’ sitting in courts around the country (not old ones which were excluded from this judgement) may need to be reworked or simply thrown in the bin. This is going to have a massive impact on firms like Flemix (formally Coombe & Associates or something similar) who make all their money off easy garnishee orders and their commissions on those. The various credit providers and collections involved in the case begged the court not to say that the ruling effects old EAOs since this might crash the entire banking and financial system. this is what they call a systemic risk. The Con Court asked that the matter be looked into by the Treasury and Reserve Bank and other relevant parties but held off on making a retroactive ruling at this point. the ruling is thus only for those individual EAOs and any new ones elsewhere in SA.
The Tide is Turning Against Garnishee Abuse
This judgement ties in nicely with a new bill about the abuses of Garnishee orders being prepared by parliament. It seems that years of abuse and misuse of these EAOs is finally coming to roost. Consumers who do feel they are being garnished too much each month can approach legal help to have these orders reviewed and change and if paid up removed. Though costly in the short term it can lead to refunds and provide great relief long term.
Talk to a Debt Counsellor or Attorney about it.
If someone asks you to sign consent to being garnished when you take out credit this is not legal. If someone comes to you when you have missed payments for a while and ask you t sign that you will accept a garnishee order this is something a consumer can do but if they don’t want to the credit provider can then take the matter to court and have a Magistrate consider all the facts and figures before any such EAO is put into effect.
Download the Ruling here:
New Rendering of MCA Section 65J:
It is declared that section 65J(2)(a) and (b) of the Magistrates’ Courts Act, 1944 reads as follows:
“65J. Emoluments attachment orders
. . .
(2) An emoluments attachment order shall not be issued—
(a) unless the judgment debtor has consented thereto in writing or and the court has so authorised after satisfying itself that it is just and equitable that an emoluments attachment order be issued and that the amount is appropriate, whether on application to the court or otherwise, and such authorisation has not been suspended; or
(b) unless the judgment creditor or his or her attorney has first—
(i) sent a registered letter to the judgment debtor at his or her last known address advising him or her of the amount of the judgment debt and costs as yet unpaid and warning him or her that an emoluments attachment order will may be issued if the said amount is not paid within ten days of the date on which that registered letter was posted; and
(ii) filed with the clerk of the court an affidavit or an affirmation by the judgment creditor or a certificate by his or her attorney setting forth the amount of the judgment debt at the date of the order laying down the specific instalments, the costs, if any, which have accumulated since that date, the payments received since that date and the balance owing and declaring that the provisions of subparagraph (i) have been complied with on the date specified therein.; and
(iii) been granted an order of court authorising that an emoluments attachment order be issued after satisfying itself that it is just and equitable that the order be issued and that the amount is appropriate.”