Friday, 10 July 2015

Debt collection industry gets well deserved kick up the backside

Towards the end of 2012, the Banking Association of South Africa and the Minister of Finance reached an agreement to suspend the use of emolument attachment orders (‘EAO’) with a view to curbing the irresponsible collection of debt.  This agreement was not legally binding and many entities continued to use this methodology to collect outstanding debt.  The result of the EAO process, in practice, is that the most vulnerable members of our society are often exploited and milked like cash cows in the debt collection process.

There is no limit on the amount of EAO’s which may be granted against a particular debtor.  Further, there is no regard to the debtor’s ability to actually live and repay the outstanding capital amount (plus interest and legal fees) – simply, there is no regard to affordability. And, perhaps worse of all, there is no judicial oversight of these matters – with the result that an administrative employee of the court (the clerk of the civil court) often grants these EAO’s in a mindless ad hoc manner. 

This may all soon change.  At last. In a seminal judgment delivered by Desai J in the University of Stellenbosch Legal Aid Clinic & others / Minister of Justice & others (WCHC 16703/14) certain provisions of the Magistrates Court Act were declared inconsistent with the Constitution of the Republic of South Africa in that they failed to provide for judicial oversight in the issuing of an emolument attachment order against a judgment debtor.  The court also raised serious concerns with the ethical behavior of attorneys and debt collectors “forum shopping” and thereby depriving debtors the right to access courts and enjoy protection of the law.  The full judgment can be read here. [PDF]

In theory, an emolument attachment order provides a creditor with a fair and reasonable method to collect outstanding monies.  Briefly, and without wanting to over simplify the process, a creditor obtains a court order (judgment) against a defaulting debtor and is authorised to deduct a portion of the debtor’s monthly salary to satisfy the outstanding debt.  

In many cases in practice however, the judgment is obtained via the debtor signing a consent to judgment – often, this “consent” is achieved using questionable methods which, in my view, border psychological terrorism at best and unethical and illegal conduct at worst – the “consent” is often not voluntary nor is it informed.  Moreover, in cases where “consent” (and I use that term very loosely) is not obtained, the majority of judgments are granted by default with the debtor being none the wiser.

As alluded to above, another massive problem plaguing this process is forum shopping.  Creditors and their attorneys often select courts which are amenable to granting this type of order – often these courts are hundreds of kilometers from where the debtor lives and/or works.  Access to justice in these matters, in my view, is not possible.  In the consumer-centric world we now live in, this process is archaic, one-sided and in desperate need of amendment.

As pointed out by another attorney, this process is generally aimed at the poorest of the poor.  Often illiterate, and regularly without access to attorneys and legal representation.  By no means is the EAO the sole reason for social ill, but it exacerbates the undoubted problems our society faces and leads to events such as Marikana.  

So, what can be done?  The legal process will no doubt unfold slowly over the next few months (years?) and we will see well overdue development in this area, but in my view, here are some possible solutions to be considered:
  1. Immediately suspend all EAO’s until the Magistrate Court’s Act is amended;
  2. Ensure that going forward, all of these applications are heard before a Magistrate in an open court. This could be done in the assigned motion court in the particular magistrates court and heard along with all other motions assigned for that particular day;
  3. Remove the burden from Magistrates, and place it on attorneys.  Ensure that the attorney responsible for running the process deposes to an affidavit (which must be included in the papers when applying for an EAO) in which he/she confirms that all salient provisions of the Magistrates Court Act and National Credit Act have been complied with and in his/her view the application is just and equitable;
  4. Ensure that each application includes an affordability assessment and confirmation of existing EAO’s in effect;
  5. A task team ought to be established to investigate this issue under the auspices of the Department of Justice and the Law Society of South Africa. The Law Society should immediately investigate the wider problem – this is not a new issue.  In conjunction with the Association of Debt Recovery Agents the bodies must take appropriate steps against attorneys and debt collectors who fall foul of responsible and reasonable conduct.