Neil Roets, CEO of debt counselling firm Debt Rescue, said it had long been a major issue in the debt counselling industry that debt collectors were using specific courts, far away from where the debtor lived, to obtain garnishee orders. "Most of us in the debt counselling industry have been deeply suspicious of the manner in which these orders were issued. There were a relatively small number of courts in outlying areas where thousands of these orders were being processed.
Businesswoman Wendy Appelbaum‚ who was the driving force behind the case, approached the Legal Aid Clinic in 2012 when she found out EAOs had been obtained against some of the workers on her wine farm‚ De Morgenzon. Business Day reported that Appelbaum had started doing her own research and realised a great injustice was being done.
"The Legal Aid Clinic had been handling many of these cases and it was fantastic to work with them to make it a broader case with constitutional grounds and far-reaching implications‚" she said. "The ruling is a great victory - not just for the applicants‚ but for the poor in general. It sets a precedent that will hopefully clean up the lending industry and it focuses the state's attention on its duty to ensure that justice is done for all."
Roets said it was a major problem for indebted consumers to defend themselves when the court where that order was granted was on the other side of the country.
In his judgment‚ Desai raised two sets of objections. On issue was what he called "insufficient judicial oversight over EAOs when they were issued by a clerk of the court without the involvement of a magistrate. The Magistrates' Court Act makes provision for such a procedure‚ but only if debtors give their written consent."
However‚ Desai found debtors were routinely influenced to sign forms that they did not understand‚ or that their signatures were blatantly forged.
Roets said the criticism levelled at credit providers by Justice Desai referring to them as "predatory" lifted the blanket on a dirty secret that had long been a bugbear for debt counsellors.
"While I accept the fact that many credit providers act ethically, there is no question that there are many who do not. Some try and exploit loopholes that exist in the Credit Amendment Act but many use practices that are just outright immoral and in some cases, illegal."
Judge Desai urged the ministers of justice and of trade and industry‚ as well as the National Credit Regulator‚ the Human Rights Commission and the Law Society to "take whatever steps they deem necessary to alert debtors as to their rights in terms of this judgment."
Roets said in many cases - and this was particularly true of micro lenders - affordability checks were perfunctory or non-existent.
"There is no question that large numbers of loans granted by these business entities were reckless and unsurprisingly the applicants defaulted on their repayments."
Desai had pointed out that "as a result of the abuse of the EAO system‚ millions of people across the country were trapped in the same situation."
Roets said the judgement did not mean that that all EAOs were now suddenly invalid. "The court does not have a problem with EAOs as such - just if they are abused and obtained unlawfully. If you have an order against you take all your documents to a lawyer or advice office or Legal Aid Clinic so they can check to see if there are irregularities."
For more information, go to www.debtrescue.co.za.
