Challenges arising from Garnishee Orders
With food and petrol prices on the rise, South African consumers are increasingly feeling the strain and resorting to credit and loans to buy both big ticket items and necessities, leading to escalating debt. The statistics reveal that South Africans are, quite simply, drowning in debt.
The South African Reserve Bank issued a warning at the beginning of this year that debt levels are too high in this, the continent’s biggest economy. In December 2011, household debt in South Africa stood at a whopping 75% of disposable income. Recent estimates from the National Credit Regulator revealed that South Africans owe some R1.3 trillion in consumer debt.
This figure includes all outstanding debt balances, including vehicle finance and mortgages, but more than 9% of that amount is owed on unsecured personal loans. Last year, approximately R84 billion in unsecured loans were issued to consumers. When consumers default on paying back those loans, the debt collectors and credit providers resort to Garnishee Orders.
“This is when they go to the court for Emoluments Attachment Orders (EOAs), which allow them to obtain their payment directly from an individual’s employer, who deducts it from the individual’s salary,” explains David Brown, Managing Director of Profile. “These Garnishee Orders provide a huge administrative headache to companies, since the people working in their payroll departments do not come from legal backgrounds and are therefore not proficient in the legalese necessary to understand these garnishees.
To complicate matters even further, a standard format for garnishees does not seem to exist, so it can be immensely difficult to reconcile it and make the payments on time.” An estimated three million South African consumers are currently shackled to Garnishee Orders. A study by the University of Pretoria’s Law Clinic found that the system is dogged with huge amounts of irregularities and that the garnishee order deduction mechanism is being grossly abused by both creditors and collectors.
Debtors had often not consented to the deductions, unscrupulous creditors ignore regulations and, since the court allows collectors to add legal and collection fees without stipulating the total amount repayable, they often charge exorbitant amounts of interest – up to 60% on top of capital amounts and more besides for collection fees.
The current, flawed system relies on the collectors to inform the employer when the debt has been settled, but many of them are not honest. Recent media reports revealed that the overcharging reportedly amounts to R3 billion per year, which is essentially being stolen from ignorant consumers. To protect their employees from being overcharged and to ease the process of Garnishee Order payments for their accounts departments, employers have the option of enlisting the services of Profile Holdings.
This software as a service (SaaS), third-party payment portal for payroll systems provides an all-in-one solution for not only Garnishee Orders, but also for all the other issues that payroll departments typically have to deal with. This independent, payroll payments interface will reduce the cost of post-payroll administrative functions and, since it is internet-based, the system is fully transparent, secure and auditable by the employer.
“Part of the features and benefits of Profile directly pertains to Garnishee Orders,” says Brown. “Profile provides a simple solution to the maintenance and managing of Garnishee Orders. It will allow employers to view accurate EAO balances, detailed reports of all payments made, let them send discharge letters to creditors and magistrates, and it also reduces all garnishee payments to one payment.”
Although the current garnishee order system is incredibly weak in South Africa, implementing Profile will go a long way to ensure that corrupt creditors can no longer abuse South Africa’s already cash-strapped consumers, Brown concludes.