The Western Cape High Court handed down Judgment in what may be described as a landmark victory for consumers against the micro-lending industry and the procedures employed by it to collect consumers’ debts.
Emolument Attachment Orders (EAO) are regulated by section 65J of the Magistrates’ Court Act and permits the attachment of a debtor’s monthly salary or weekly wages and obligates his or her employer (garnishee) to pay specific amounts to the creditor or its attorney. Such amounts are to be paid until the judgment debt, interest and legal costs are settled in full.
The granting of such Orders compelled employers to deduct the amount specified in the EAO. However, that was not the only issue created by these orders. There was no limit on the amount to be deducted, nor was there a limit on the number of EAO’s which may be granted against a particular debtor. Creditors also used this procedure as a way to circumvent Magistrates’ oversight in assessing what amounts are just and affordable by having a debtor sign an acknowledgement of debt, an undertaking to pay in installments, issuing of an EAO and consent to the jurisdiction of a Court not located in the area in which the debtor neither resides nor works.
The effect thereof was that the clerks of the Court issued EAO’s and in many cases debtors had more than half or almost all of their salary deducted in a Court district that they had no hope of reaching.
The Court found, amongst others, that the debt collectors were unscrupulous, dishonest and driven by collection targets. The Court expressed concern that one of the respondents indicated that they have 150 000 active cases in which debts totaled more than one billion Rand. On this basis the Court assumed that thousands, if not tens of thousands… [of cases] involving ordinary working people in debt, are having significant portions of their salaries or wages deduced based on unlawfully obtained EAOs.
The result of this judgment is that certain portions of the section 65J which regulates EAO’s are inconsistent with the Constitution and invalid because it fails to provide for oversight by a Magistrate to decide upon fairness, affordability and compliance with the Rules of the Court. Debt collectors will not be able require debtors to consent to the jurisdiction of a Court outside the area where the debtor resides or works and debtors will be able to make representations to Court before an EAO is granted.
The Court has also ordered the Law Society to determine whether the attorneys involved in the unlawful EAO’s failed in their ethical duties in as far as they might have “shopped” or scouted for Courts which was not in the district of the debtor and was open to issuing EAO without proper consideration.
We are sure to see significant reform in the Emoluments Attachment Order procedures to ensure justice and fairness. Should you be unsure whether the EAO issued against you was obtained unlawfully, it would be advisable to seek legal assistance.
By: Martin Scheepers (LL.B)