National Treasury has threatened to shut down SA’s garnishee system

National Treasury has threatened to shut down SA’s garnishee system as a result of the systemic abuse consumers are being subjected to by unscrupulous collection attorneys.

This was revealed by Ingrid Goodspeed, Treasury’s chief director for Financial Sector Development, during an industry summit on garnishee orders held in Sandton on Friday.

“We are engaging with the Department of Justice to shut-down garnishee orders for everything except maintenance, because we see no other solution,” said Goodspeed.

“We are looking at throwing the baby out with the bath water.”

Her comments were met with obvious discomfort by the audience, largely composed of professionals from the debt collections industry, which generates billions annually through an estimated 3m garnishees effected against the salaries of SA employees.

By now the debt collections industry has admitted that the garnishee system “stinks” but they have largely been appealing to regulators for amendments to the system rather than a complete abolishment of it.

“Don’t throw the baby out with the bathwater” has effectively become the industry’s appeal.

But while inviting the floor to submit comments to Treasury on the matter, Goodspeed indicated that she has not heard anything that so far has changed her mind that it should be abolished.

In support of her position, Goodspeed cited levels of abuse in the system which appear to be too systemic to repair and which have a profound effect on consumers and on the SA economy as a whole.

These extend from gross overcharging of consumers by way of the legal fees associated with garnishee orders, to outright fraud and illegally-issued orders.

Goodspeed’s presentation contained reference to findings of a Moneyweb investigation into garnishee abuse, including an image of the Steyn Attorneys statement, which highlighted the case of a platinum miner who was charged in excess of R11 000 on a R1 000 loan.

“I don’t believe this is an isolated incident, this guy has a debt of R1 000 and it ended up over R11 000… there [are] still going to be more legal charges and more interest on the outstanding balance,” Goodspeed said.

“We can have a show of hands of who believes that this is acceptable behavior? But it must be seen as abuse. This is where we need to shut down what’s happening,” she added.

Referencing components in the Consumer Financial Vulnerability Index, which relate to a consumer’s perception of their ability to service debt, she commented:

“There is something rotten in the system which is impacting consumers.

“If you are a credit provider you should see this as you killing your golden goose, and that does not make any sense at all.”

Speaking on the sidelines of the event Goodspeed agreed that the extent and breadth of abuse of the garnishee system has by now reached levels, which appear to be beyond reform.

Abolishing the system is not “something government wants to do” but owing to the levels of malpractice and the impact it is having on consumers “it looks like that’s the way to go.”

She dismissed arguments that shutting-down the system would alter a bank’s credit risk assessment, resulting in reduced access to credit for the poor.

Instead, these risk concerns should be addressed at the point of lending, through proper affordability assessments, not by effectively securing unsecured debt via garnishee orders, she added.

Credit Ombud condemns garnishee system

In his keynote address Credit Ombud Manie van Schalkwyk was scathing in his condemnation of the garnishee system and agreed that there was widespread system which requires urgent attention.

In condemning the abuse of the system he highlighted wide ranging abuses which mimic those uncovered by Moneyweb and have been uncovered in audits completed by law firm Edward Nathan Sonnenbergs (ENS) and the UP.

Quoting work done by the UP, van Schalkwyk suggested that estimates that between 10-15% of SA’s employees may have garnishee orders on their salaries may be “conservative.”

This employee base is being subjected to garnishee abuse which is clearly illegal but his major concern was those garnishee orders “that are not illegal but immoral.”

These are the exorbitant legal fees imposed with garnishee orders.

Referencing examples of such abuse he said: “these are not isolated cases; the major culprits are sitting here, they are sitting on boards and on (debt) councils.

The current practice is not sustainable and the continuation of the current practices will have a significant socio economic impact on South Africa. Why do these people take so much money from these people that they will never be able to return to the credit market?” he asked.

This article first appeared on www.moneyweb.co.za