The Stellenbosch University (SU) Law Clinic has once again blown the lid on the lengths “unscrupulous lenders” continue to go to fleece the poor working class of their hard-earned salaries, leaving them with little to no income to survive the month.
In some cases, up to 75% was fleeced from debtors’ monthly wages, prompting the clinic to call for urgent intervention.
Data compiled by senior attorney and lecturer at the SU Law Clinic Dr Stephan van der Merwe showed that that credit lenders use tricks to side-step the legal requirements enforced by the garnishee order system, an irrevocable instruction to allow payroll deductions, and debtors seem to be lured into debt traps from which they were unable to escape as outstanding loans were simply incorporated into new loans.
“Lenders use a bag of tricks to side-step the legal requirements enforced by the emolument attachment order (garnishee order) system, which limits the amount that can be deducted from an employee’s salary to a maximum of 25%.
“While garnishee orders remained a potentially lucrative and secure collection instrument, it is now considerably more difficult to issue them. Consequently, creditors pivoted to alternative methods to keep expanding their lucrative business enterprises by extending reckless loans while continuing to reap the benefits of wage garnishment,” said Van der Merwe.
He compiled the report after he had received several requests from journalists, members of the public and professionals working in the debt industry.
Regarding garnishee orders Van der Merwe said: “While a debtor may have consented to reduce their monthly salary by a manageable amount (calculated based on an affordability assessment), no employee would instruct their employer to deduct amounts that would cause them to receive no income, as transpired in some of the cases mentioned above.
This irrevocable instruction, which can only be amended in favour of the creditor, places the debtor in an untenable position and demonstrates the vulnerability caused by the payroll deduction mechanism.”
The report also showed that lenders can count on “indifferent or complicit employers” who make deductions that were often completely disproportionate to a debtor’s salary.
“In many instances, deductions on loans are made in favour of multiple creditors and for amounts well above 25% of the debtor’s salary. These deductions are so unfettered and egregious that in some cases employees received zero income...”
In a specific case, a payroll deduction of R11 178 was processed against a debtor’s monthly salary of R15 041. In another case, payroll deductions totalling R14 566 were processed in favour of two creditors against a debtor’s monthly salary of R21 475.
“In both cases, these debtors received a net pay of zero rand with which to maintain themselves and their dependants for the relevant months. There are instances of payroll deductions appearing as misleadingly identified items on a debtor’s salary slip,” said Van der Merwe.
Van der Merwe called on lawmakers to affect legislative development to protect vulnerable debtors against payroll deductions and unscrupulous lenders.
“We need urgent intervention to veto the prevailing unconstitutional and unconscionable abuse of the payroll deduction mechanism,” said Van der Merwe.
Cosatu’s national spokesperson, Matthew Parks said the report painted a “very depressing reality”.
“There is clearly a need for the government, employers, registered financial lenders, law clinics and unions to do much more to educate workers on their rights and to expose and tackle those who abuse them.
“Employers too need to understand workers get into debt because they pay them a pittance. Employers need to pay workers a living wage to help them avoid the need to loan money to survive...This includes employers honouring wage agreements for annual salary increases.
Government needs to crack down on non-registered financial lenders who are usually involved in such cases and flagrantly break the National Credit Act and exploit lenders. They need to be shut down and put out of business,” said Parks.
The report was shared with the National Credit Regulator, the Credit Ombud. They did not respond to enquiries by deadline on Monday.
The Department of Trade Industry and Competition said they would respond to questions on Wednesday.
Cape Times