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South Africa: Reckless lending’s billion rand problem

The winds of change have blown over the finance industry, after a landmark ruling by the Western Cape High Court and Constitutional Court pertaining to certain sections of the Magistrate Court’s Act relating to Emoluments Attachment Orders (EAOs).

The case started when businesswoman Wendy Appelbaum found that several of her employees were forced by EAOs for up to 80 percent of their salaries deducted each month to repay creditors. According to her, the staff were forced repay amounts that left them unable to survive.

According to Cape Debt Clinic, debt counsellors have assisted in repayment plans totalling an estimated 18 billion. The company said statistics from 2013 revealed that about 240 000 government employees and about 120 000 private sector employees had EAOs against their salaries (read here).

In July last year, the University of Stellenbosch’s Legal Aid Clinic (LAC) et al brought a case against the Minister of Justice and Others. Judge Siraj Desai in the Western Cape High Court found for the applicants, ruling that oversight needed to be applied to EAOs in terms of affordability. He ruled that clerks of the court would no longer be allowed to sign off and that creditors who filed EAOs in areas where the debtor did not live or work or where expense was incurred to travel to, be stopped. This common practice by creditors infringed on a consumer’s human right to access to the court system, he said.

The LAC sought to have section 65J of the Magistrate Court’s Act deemed unconstitutional, which Judge Desai agreed with, but the ConCourt ruled that the section would rather be reworded to be congruent with the Constitution, than marked as wholly unconstitutional.

The ConCourt upheld Judge Desai’s ruling on oversight and jurisdiction and also ordered that EAOs could not be issued unless the debtor had consented in writing. Court authorised EAOs had to meet the conditions of being just, equitable and appropriate.

The SA Human Rights Commission lauded the ruling, calling it a victory for the poverty stricken.

Click here to read Judge Desai’s ruling.

LEX Africa South African member firm – Avocats Werksmans

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