The applicants in the case, 15 low-income consumers, are distressing illustrations of the devastation that reckless loans have wreaked on the lives of poor and vulnerable South Africans, while credit providers and debt collectors continue collecting profits, all the while abusing an inefficient regulatory and justice system.
Desai – who ruled as unconstitutional certain sections of the Magistrates’ Court Act (MCA), which governs the granting of Emolument Attachment Orders (EAOs), commonly known as garnishee orders – declared at least 15 EAOs pertaining to these consumers to be unlawful. His ruling will affect EAOs granted on a similar basis and will change the way they are obtained in future.
If the Constitutional Court confirms Desai’s judgment, all future EAOs will need to be granted by a magistrate and debtors will not be permitted to consent to the jurisdiction of a court other than where they live or work.
Currently, the MCA allows an EAO to be issued where the debtor consents to it in writing even if it has not received proper judicial oversight. According to the applicants, however, they were either bullied into signing the consent forms or did so under false pretences. Desai’s ruling is a victory for the University of Stellenbosch’s Legal Aid Clinic (LAC) and the 15 consumers, mostly farmworkers in the Cape winelands. It also means a thorough hiding for 13 credit providers and the law firm that obtained EAOs for them, Flemix & Associates.
Desai highlights in his judgment some examples where loans are granted and the repayments exceed 50% of their income. “These were quite obviously reckless loans and unsurprisingly the applicants defaulted on their repayments,” he says.
“The affordability assessment was either perfunctory or non-existent. The second applicant’s affordability assessment indicates his sole expense to be groceries of R50 per month. In the case of the ninth applicant, her only expense is groceries of R100 per month. The affordability assessments in respect of the fourth and fifteenth applicants reflect that they have no expenses at all,” he writes in his judgment.
Some of the farmworkers had more than half their salary attached or multiple EAOs issued on the same day by a clerk of court who simply rubber-stamped EAO applications.
Desai suggested Flemix may have tens of thousands other active cases based on similarly unlawfully obtained attachment orders.
According to former FNB CEO Michael Jordaan’s “matchbox calculations”, 40% of 2.5 million garnishee orders are off-jurisdiction, while 80% are now invalid due to Desai’s ruling that consent to judgment without the oversight of a magistrate is unconstitutional.