Hands off my salary!
Provided by ENSafrica
By Armando Aguiar & Natalie Keetsi
30 Sep 2016
The credit industry in South Africa is significant and lucrative. According to the National Credit Regulator’s Consumer Credit Market Report for the first quarter of 2016, South Africa’s total outstanding gross debtors’ book for consumers for the quarter ending March 2016 was a staggering R1.66-trillion, in respect of which unsecured credit accounted for R165.16-billion. The unsecured credit sector is where the poor, who historically have not had access to formal banking credit facilities, are exposed and often taken advantage of by unscrupulous credit providers.
It is a painful fact that credit extended must be repaid, sometimes with whopping interest and other charges – particularly in the unsecured credit sector. Often the repayment terms of unsecured credit are far too onerous and the debtor is unable to make payment when due. When a debtor defaults, there are a number of legal mechanisms available to a credit provider to recover the debt. One of these is to obtain an emoluments attachment order (“EAO”). In terms of this type of order, the debtor pays off the debt in instalments that are deducted from the debtor’s salary by his or her employer and paid to the credit provider, until the debt is repaid.
EAOs are regulated by section 65J of the Magistrates’ Courts Act, 1944 (“the Act”). Prior to a recent Constitutional Court decision, EAOs could be issued when the debtor had consented to the EAO in writing or the court had authorised the issue of the EAO. Importantly, before this decision, a judgment creditor could approach the clerk of the magistrate’s court for an EAO to be issued. As such, the exercise of judicial discretion (of a magistrate) was not required for the EAO to be issued – all that was required was the written consent of the debtor or the authorisation of the clerk of the magistrate’s court.
However, the law as we knew it under section 65J of the Act changed on 13 September 2016, following the Constitutional Court decision in University of Stellenbosch Legal Aid Clinic and Others v Minister of Justice and Correctional Services and Others (case no. CCT127/15, 13 September 2016).
In this case, the University of Stellenbosch Legal Aid Clinic represented 15 applicants, all indigent general workers earning low wages, who had obtained unsecured small loans from a number of credit providers (the respondents in the matter). The applicants defaulted on the loan repayments and the credit providers (some of them using questionable, and in some instances fraudulent, means) obtained default judgment against the applicants and then obtained EAOs from clerks of the magistrates’ courts far from where the debtors worked and resided.
The deductions in terms of the EAOs were substantial, leaving the applicants with insufficient income to support their families. Given these unconscionable circumstances, they asked the credit providers to reduce the monthly deductions. The credit providers refused to do so, leading to the applicants launching an application in the Western Cape High Court in September 2014 for an order declaring the EAOs invalid and of no force and effect.
The High Court, relying on three earlier Constitutional Court decisions, held that section 65J(2)(b) of the Act is unconstitutional to the extent that it fails to provide for judicial oversight for the issuing of EAOs, thus denying debtors their section 34 constitutional right to access to courts. The High Court further issued a declaratory order to the effect that, under section 45 of the Act, a debtor may not consent to the jurisdiction of a court other than the one in the area in which the debtor lives or works. The High Court order was then sent to the Constitutional Court for confirmation.
- The nub of the issues before the Constitutional Court was whether:the order of the High Court declaring section 65J(2) of the Act unconstitutional should be confirmed (“the first issue”); and
- for purposes of granting EAOs, a debtor can consent to the jurisdiction of a magistrate’s court other than the one where the debtor resides or works (“the second issue”).
The court confirmed the substance of the High Court order, although it did not confirm the order of constitutional invalidity, instead providing an alternative remedy. Justices Edwin Cameron and Ray Zondo wrote separate concurring majority judgments, which the majority of the court’s judges supported.
Justice Cameron pointed out the harsh effects of a lack of judicial oversight in issuing EAOs and the threat this has to the “livelihood and dignity of low-income earners”. He noted that it is fundamental that certain considerations be taken into account when an EAO is sought as, by their nature, EAOs are burdensome, considering that the debtor is deprived of autonomy to determine how to arrange his or her finances to pay off debt. Furthermore, EAOs are inflexible as they fail to take cognisance of the debtor’s earnings, as well as the probability of a debtor’s changing personal circumstances from the time that the judgment debt is ordered to be paid to the time the EAO is sought. It is only through the judicial oversight (of a magistrate) that such considerations can be taken into account, to ensure that EAOs are granted only when it is just and equitable to do so.
Justice Zondo added that, to the extent that the Act doesn’t provide for judicial oversight where the court doesn’t authorise the EAO, the Act will be inconsistent with the right to access to courts and will therefore be constitutionally invalid.
To remedy the unconstitutional effects of section 65J, the court ordered that certain requirements needed to be read into the section. These include that a magistrate has to be satisfied that it is just and equitable that the EAO be issued and that the monthly amounts to be deducted from the debtor’s salary are appropriate.
It follows that, as of 13 September 2016, an EAO may only be issued by a magistrate, who is satisfied that these requirements have been met. However, even after a magistrate has exercised discretion in this regard, it will always be open for the parties to challenge the magistrate’s decision on appeal.
In relation to the second issue, the Constitutional Court upheld the High Court’s findings and added that a debtor cannot consent to the jurisdiction of a magistrate’s court other than the one where he or she lives or works or in which the “goods are kept”.
The judgment does not apply to EAOs already granted, unless individually challenged, but it does ensure that in future unscrupulous credit providers will not have easy access to debtors’ salaries and it offers protection to the poor and their families – the most vulnerable of debtors.
This article was first published by ENSafrica (www.ENSafrica.com) on 19 September 2016.(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)
Consumer Protection articles on GoLegal
- With less than 100 days to go until POPIA kicks in, the Information Regulator may be starting to flex its muscles
- Getting compliant with the Protection of Personal Information Act (POPIA)
- Conducting credit checks on customers? You may require prior authorisation
- Are you really giving your consent freely?