Capitec Bank defends a restitution claim from the victim of an allegedly fraudulent garnishee order.
A movement to claim potentially hundreds of millions of rands from the microlending industry may soon reach an inflection point as
Several successful applications have already been made to rescind fraudulent or illegitimate garnishee orders dating back a decade or more. In 2013 these practices contributed to a now largely forgotten strike wave in the Cape Winelands, which was at the time referred to as an “uprising” and which eventually led to a historic Constitutional Court judgment clamping down on some of the sector’s abuses.
Further complicating matters for individual victims of such abuses, the microlending industry has teemed with small fly-by-night entities. Many implicated companies no longer exist or were sold and restructured, making it unclear who is actually liable.Major established players like Bayport Financial Services and Capitec, as well as debt collector firms like Flemix & Associates, are squarely in the crosshairs of the legal stratagem being pioneered by a small company based in Midrand, GORR.
And, while a battle looms about the sins of the past, the same old debt collectors are seemingly up to their same old tricks, dressed up in new legal forms.Back in 2014, Stellenbosch University’s Legal Aid Clinic dragged no less than 13 microlenders – as well as one of the sector’s leading debt collectors and the ministers of justice and correctional services and trade and industry, alongside the National Credit Regulator – to the Western Cape High Court.
To discourage abuses, the law made provision for a garnishee order to be applied only after a magistrates’ court has weighed up its fairness and affordability. The whole enterprise was fuelled by debt collectors who effectively work on commission and are perversely incentivised to churn out as many garnishee orders as possible, sometimes employing harassment and intimidation to achieve this end.“ provides that following an enquiry by a magistrate into a debtor’s financial position, the Court may make such order as it deems ‘just and equitable’.
The Desai judgment was appealed to the Constitutional Court where it was, unfortunately for the debt collectors, substantially confirmed, leading to amendments to the Magistrates’ Act in 2018 to make it unambiguous that real judicial oversight is required to procure a garnishee order.However, a key concession was that the declaration of constitutional invalidity would be “prospective”.
Previously, credit providers or their attorneys had relied on a so-called “Section 45 consent” to obtain judgments and EAOs against debtors via distant courts that did not have jurisdiction over the debtors. It is this retrospectivity that GORR is relying on in order to approach the courts to undo unlawfully granted garnishee orders and to seek restitution.If the order is deemed void, then the parties are restored to the position they were in prior to the unlawful order.
This means, they argue, that lenders like Capitec must pay back the money, but the original liability of the debtor is prescribed and extinguished. He defaulted on two separate Capitec loans in 2011 which saddled him with concurrent garnishee deductions from his salary of R900 and R1,200 – in each case with interest of 15.5%.
The instruction sent to Metrorail by Capitec’s attorneys to instate the deductions for one of these loans sets out how the original outstanding amount of R17,219 was instantly transformed into a garnishee order for R32,238. “The motivation of GORR and/or the Applicant’s attorneys is self-evidently financial: they seek to generate fees en masse based upon Capitec’s settled debtor’s book.”
The Capitec case went to court late last month but was postponed to August after the magistrate pointed out anomalies in the court order used by Capitec’s lawyers against Phefo all those years ago. Attorneys were ordered to find the original file, which led to a postponement to a new court date in August.
Since 2018 the company has received 60 recision applications, most of these from GORR and about half of them successful. Ultimately, he paid R52,000 via the garnishee. The recision was granted and this sum was paid back as restitution. In particular, the magistrates’ courts in Randburg, Randfontein, Wellington, Ermelo, Verulam, Kimberley, Kempton Park, Temba, Hennenman and East London were regularly utilised by microlenders.The case – or rather cases – of Johannesburg policeman Percy Mothibi is illustrative of not only the alleged abuse of garnishee orders but also the seemingly complete lack of affordability assessments in the microlending sector.
Before long Mothibi found himself with five concurrent garnishee orders from all over the country consuming R3,875.35 a month – just shy of half of his R8,000 salary at the time. As in the Capitec case described above, large legal fees were baked into the debts. Izwe Loans was sold and is managed by MBD/TC Recoveries. We reached out to TC Recoveries, and they referred us to yet another company, RCS Cards, as they no longer work on Izwe Loan accounts.
Whatever else this solution entails, it seemingly makes mincemeat of the 25% cap placed on garnishees.reveals that a worker with a gross salary of R12,919.88 was losing R8,828.92 to a “payroll deduction” destined for Bayport. That’s 68% of the employee’s salary. He writes that “the dubious consent to EAO that was previously outlawed by the 2018 amendments to the MCA , is replaced by an ‘irrevocable instruction’. This clause forms part of the credit agreement that is concluded before the debt is incurred and is relied on by the creditor to compel employers to process payroll deductions.”
“The unions approached the City with union-initiated loan schemes and compelled the City to grant them.”
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