Between 10 and 15 percent of the South African workforce – including 20 percent of all public servants – have money deducted from their monthly salary or weekly wages to repay debt. And garnishee orders, the mechanism used to dock the pay of indebted consumers, are being widely abused.
A garnishee order is the term commonly used – albeit incorrectly – to describe an emoluments attachment order, which grants a creditor the right to receive instalments by way of deductions from a debtor’s wages or salary.
The abuses relating to garnishee orders – which include the forging of signatures, the miscalculation of amounts owing, excessive legal fees, and the illegal deduction of collection fees – came under the spotlight at a “debt summit” in Midrand this week.
Charlotte van Sittert, of the University of Pretoria Law Clinic, delivered a presentation on the undesirable practices relating to garnishee orders.
Clark Gardner, chief executive officer of Summit Financial Partners, estimates there are close to three million garnishee orders in circulation and that between 10 percent and 15 percent of employees have garnishee deductions – a figure he bases on the “large number” of clients for whom his company audits and administers garnishee deductions.
“We have examples where a bank loan of R20 000 becomes R120 000 and where R8 000 becomes R80 000.
“We’ve recently found that lenders and collectors are not even using the courts and [instead] falsely stamp garnishee deductions and get the sheriff to deliver them to employers,” Gardner says.
Summit saves debtors on average R1 000 an order by uncovering irregularities, Gardner says. “This would include excessive legal fees, interest or merely not stopping the deductions on time.”
Based on the number of garnishee orders in circulation and the average over-deduction of R1 000 per order, Gardner estimates that R3 billion is being over-deducted from orders.
The “debt summit”, which was co-hosted by the office of the Credit Ombud and the National Debt Mediation Association (NDMA), brought together academics and experts on credit, consumer law and consumer behaviour.
Magauta Mphahlele, chief executive officer of the NDMA, says there are growing concerns about lending patterns, debt enforcement procedures and practices, debt rehabilitation and consumer vulnerability.
The financial vulnerability of consumers is increasing, says Professor Bernadine de Clercq, head of personal finance research at the University of South Africa (Unisa).
According to the Consumer Financial Vulnerability Index, which is produced by Unisa’s Bureau of Market Research, in the first quarter of this year consumers started to realise their vulnerability, but in this quarter they felt they couldn’t pay all of their debt commitments, in spite of an interest rate cut, De Clercq says.
The biggest “losers” are those in the lower-income groups – meaning the majority of consumers, De Clercq says. “These consumers are paying the highest interest rates, and they have the highest debt-to-disposable income ratio. They are the least skilled and largely unemployed, and they have little to no personal financial skills.”
Research shows that debt has an adverse effect on individuals, families and the workplace. It results in reduced productivity, absenteeism, poor health and lower levels of pay satisfaction, regardless of income level.
Speaker after speaker at the “debt summit” drove home the hard facts about South African consumers: out of the 19.6 million credit-active consumers in the country, 9.22 million have impaired credit records – in other words, they are more than three months in arrears and/or have an adverse listing at a credit bureau, and/or have a judgment or an administration order against them. To put it another way, only 10.3 million – or 53 percent of credit-active consumers – are in good standing.
In fact, these figures are believed to be too conservative, because they are based on information supplied to credit bureaus. Not all credit providers supply information to the bureaus; not all debt emanates from credit agreements; and the data do not take into account consumers who are behind on paying school fees, maintenance, doctors’ bills or municipal accounts. According to National Treasury, two-thirds of the R76.6 billion owed to municipalities is owed by households.