“Every day we assist consumers that are left over-indebted as a result of EAO’s claiming a large portion of their salaries, leaving them with very little to live on each month. The average client who approaches DebtBusters is spending 109% of their net monthly income on monthly debt repayments, only keeping up to date by borrowing more at increasingly high interest rates. If they have an EAO, it reduces the clients’ ability to afford a reasonable repayment under debt counselling,” said Ian Wason, CEO of DebtBusters, South Africa’s largest Debt Counsellor.
What’s unclear now is what will happen following this landmark ruling. “It will be very interesting to see how the industry reacts to this judgement, and in particular, how employers react to this. For example, will this judgement result in employers suspending the payments of EAO’s en masse until they are all reviewed, or proven to be correct?” added Wason.
Legal action commenced after the Stellenbosch Legal Aid Clinic (LAC) brought a court action against several credit providers and the law firm, Flemix & Associates in the Western Cape High Court earlier this year
LAC was seeking to have certain sections of the Magistrate Court’s Act (MAC), relating to EAOs, declared as unconstitutional, and it’s done just that.
Judge Siraj Desai said that two sections of the MAC, “are inconsistent with the Constitution of the Republic of South Africa Act, 1996.”
Judge Desai also said that the two sections of the MAC were “invalid to the extent that they fail to provide for judicial oversight over the issuing of an emolument attachment order against a judgment debtor.”
Game changers
Judge Desai said that the Minister of Justice and Correctional Services, the National Credit Regulator, as well as LAC and the Advice Offices “are urged to take whatever steps they deem necessary to alert debtors as to their rights in terms of this judgment.”
The ruling follows several other actions that have put the issue of reckless lending in South Africa firmly in the spotlight. “This year we have seen the “three legs" to government’s attempts at fighting over-indebtedness come into focus. The first was the long overdue amendments to the National Credit Act, introducing more stringent affordability tests, the second the pending credit life insurance cap, preventing credit providers from making their money from overcharging clients for credit insurance and now the third, dti’s proposal for lower limits on interest rates,” said Wason.
He added: “We anxiously await the final resolution on the credit life cap. For many clients it is the tipping point between being able to afford their debt repayments or not.”
Lewis under fire
Following the verdict another lender came under fire this week. The National Credit Regulator (NCR) has referred furniture retailer Lewis, specifically Lewis Stores Ltd (Lewis Stores) and Monarch Insurance Company Ltd (Monarch) to the National Consumer Tribunal (Tribunal). The NCR accuses Lewis and Monarch of:
- Selling employment cover as part of credit insurance to pensioners and self-employed consumers. The loss of employment cover sold is meant to settle the pensioners and self-employed consumers’ outstanding balances under their credit agreements with Lewis Stores in the event of their retrenchment or redundancy from employment; and
- Selling disability cover as part of credit insurance to pensioners. The disability cover sold is meant to settle the pensioners’ outstanding balances under their credit agreements with Lewis Stores in the event they become disabled to continue with their occupation.
The NCR pointed out that the sale of loss of employment cover to pensioners and self-employed consumers is unreasonable and imposes an unreasonable cost to such consumers because they are not employed and cannot claim benefits under this cover. The same applies to the sale of occupational disability cover to pensioners where they no longer have an occupation.
“Pensioners and self-employed consumers are not employed and cannot be retrenched or become redundant from employment. They should not be offered loss of employment cover as part of credit insurance”, says Lesiba Mashapa, company secretary at the NCR. “This is the first case of mis-selling of credit insurance in South Africa which the NCR has referred to the Tribunal to obtain redress for the pensioners”, Mashapa says.
The NCR has requested the Tribunal to:
- Order refunds to the pensioners and self-employed consumers;
- Order an audit to be conducted; and
- Impose an administrative fine on Lewis Stores.