Flemix EAOs Thrown Out
Judge Siraj Desai has ruled in the Western Cape High Court that 15 salary attachment orders (EAOs) which were brought by Flemix & Associates were obtained unlawfully. Judge Desai has thrown them out and ordered the credit providers and Flemix to pay legal fees for the case.
What is an EAO?
When a consumer cannot or will not pay for a debt the creditor has the right to serve a summons and then go to court to potentially get a judgment against a consumer. Then they can try to get a piece of the consumers monthly salary through an EAO (what some people call a “garnishee order”) to pay off the debt. In recent years there has been a huge outcry about the huge number of such orders and the way they are done.
For some companies who specialise in collecting funds from consumers in this way there has been little resistance from under-informed consumers. In many cases the companies proceed to get a EAO based on a form signed by the consumer called a consent to judgement. Many consumer don’t even know what the form means and even sign up front when applying for credit.
Another nasty trick has been for some collections firms to get an order from a court very far from where the consumer lives or works. This means that the consumer will not realistically be able to show up to object on the day or later be able to go back to that court (as is required) to get the matter over turned because it will take too long and cost too much to travel there.
Flemix & Associates/Coombe & Associates
One collection firm who is well known for using EAOs is called Flemix & Associates. They are also known simply as Flemix or sometimes by their old name Coombe & Associates (there was a lot of name changing at one time which makes it quite confusing…which is probably the whole point of all the name changes). The company has close ties to several other firms and credit providers such as Bridge who specialise in unsecured lending.
David vs Goliath
Recently 15 consumers who were having money taken off their monthly salaries due to EAOs obtained by Flemix & Associates went to the Legal Aid Clinic (LAC) in Stellenbosch, Western Cape to get help. The LAC along with Summit and with the backing of Ms Wendy Applebaum decided to take on the ever elusive and difficult to communicate with Flemix & Associates. It was a story that quickly gathered media attention. The ‘small guys’ were taking on the ‘establishment’ and even the constitutionality of what is commonly done with regard to EAOs under the Magistrates Court Act (MCA).
After a lot of build up, the ruling was given this month in favour of the 15 consumers. The attachment orders are set aside and have been ruled to have no force. More than that Judge Desai ruled that parts of the Magistrates Court Act are indeed unconstitutional. Going a step further, Judge Desai has ordered the Department of Justice to forward copies of the ruling and court documents submitted to the Law Society of the Northern Provice. He wants them to check if Flemix and Ms Alanza Flemix-Jordaan (of Flemix & Associates) have breached the ethical standards of that body in their efforts to get EAOs at any cost. Particularly has the habit of going to specific courts far from the consumers reach been mentioned.
In many cases such EAO applications are stamped by a Clerk of the Court. Judge Desai ruled that such behavior robs consumers of the judicial oversight that a Magistrate would give the matter. With out a Judge or Magistrate looking over the matter, the financial ramifications to the consumer are not taken into account and Judge Desai said this went contrary to the consumers rights under the South African constitution.
Flemix have another 150 000 active cases (never mind past cases) in courts at the moment. Judge Desai said that while he is not allowed to look into those cases and urged Flemix to stop those matters where the case was not held where the consumer lives. All 150 000 matters might be based on unlawful behavior and as judge Desai says: “be illegal”.
The Judge has no doubt opened a HUGE can of worms which has been straining to burst apart for months, if not years, now. He hopes the ruling will make consumers aware of their rights. The LAC and Ms. Applebaum hope that the ruling will make government sit up and take notice. She says the ruling is a real victory for the poor and says that government has failed to look after the poor in any way.
Could Killing EAOs Kill Collections Agents and Cripple Creditor Collections?
In the past Government came out strong against EAOs and many of the large banks even went so far as to say they will never use them again. This was just before a lot of backpedaling as they realised the ramifications of that statement and the effect it would have on their current collections set up.
The whole Western Cape High Court matter is only to do with 15 cases right now but could start the snowball rolling in reducing or even crushing the use of EAOs without judicial oversight. Already in some courts in South Africa, Magistrates are demanding that anyone asking for such a ruling produce a financial evaluation of the consumers situation. In these Courts the issuing of EAOs has almost dried up entirely. Could it be that companies like Flemix have simply reacted by going to other more friendly courts to get their EAOs? Will that behavior now be allowed to continue? The whole matter might have to eventually go to the Supreme Court of Appeal and Constitutional Court as collections agents will not want to see such a profitable part of their business disappear in one foul swoop. It could mean the end of companies such as Flemix.
Debt Review vs EAOs
Credit Providers pay large amounts of fees to collections agents to get funds via EAOs. Collection via debt review, on the other hand, is done with cooperation from the consumer and essentially free service from the Debt Counsellor. This means that creditors collect more funds, faster and pay less to recover their money. This is one of the main reasons why credit providers have really begun to support debt review in the last few years as they have seen what a powerful collections channel it is. When placed side by side with EAOs debt review wins hands down for both the consumer and the credit provider.
While the future of EAOs seems uncertain, debt review applications have once again shot up in number during June and July. Banks such as FNB are reporting a huge spike in the number of current applications. In some cases they are saying they are seeing an extra 33% applications. Will there now be a massive push by creditors towards getting consumers into the more cost effective debt review process? Time will tell.