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Ethical Debt Collections

 




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In the main collections is a volume driven business. The margins are small (as prescribed by annexure B to the regulations relating to Debt collectors, 2003) as a result of the relatively small size of consumer debts. 

In order to maximise recoveries, debt collection agencies make use of standardised procedures and documentation, which are produced enmasse and processed. This obviously reduces the amount of time spent on an individual matter. The need for results and fees may sometimes result in some collection agencies taking shortcuts, much to the detriment of consumers. 

The recent events surrounding one of South Africa’s largest micro-lenders and its use of garnishee/emolument attachment orders has cast a negative light on the use of the instruments as a mechanism to recover debt. The allegations are that the micro-lender in question submitted fraudulent garnishee orders to employers of its customers for money it says were owed. 

A total of 400 garnishee orders allegedly granted by the Randburg and Krugersdorp magistrates courts do not have any supporting documents issued by the said courts. Court officials declare that the orders appear to be fraudulent as the cases do not appear on their system. 

Requirements for Emoluments attachments orders 

Emoluments attachment orders (EAOs) are commonly, but mistakenly, referred to as ‘garnishee orders’.An EAO is granted in terms of s 65J of the Magistrates’ Courts Act 32 of 1944 (MCA) and orders an employer (referred to as a ‘garnishee’, hence the confusion) to make deductions from a debtor’s salary or wages and pay these over to the creditor or his/its attorneys.

A garnishee order, in terms of s 72 of the MCA, authorises a creditor to attach any debt owed, or which will become due, to the debtor by a garnishee.

An EAO can be obtained in instances where:
 The court has authorised it
 Where the judgement debtor has consented thereto
 In terms of section 65J(2)(b)

In most instances the second and third options present problems. In the second instant the clerk of court has no way of verifying that the debtor did indeed sign the consent form, that the debtor understood the document and agreed to the installments contained therein. Further was the debtor coerced into signing the document? Cases of debtors being made to sign blank consent forms and forgeries of signatures and misrepresentation have been known to occur. 

The net result of the abuse of the system has resulted in BASA (Banking association of South Africa) desisting from using garnishee orders against credit defaulters. Treasury and the finance ministry are now looking into the use of EAO’s and garnishee orders and by all accounts appear to be in favour of either scraping them altogether or minimising the instances wherein they can be used. The case of the micro-lender abuse has not helped the cause either. 

But is there a use for EAO’s and garnishee orders in the South African debt collection landscape? We believe there is and our next installment will indicate why we believe this is so and how we suggest the process be improved to safeguard the consumer against abuse whilst still affording the debt collector a reliable means to recover debt. 

OVAG has over the year’s amassed extensive experience in aspects of the collections cycle. Our business model applies different techniques to maximize collections whether it is in the early stage or late stage in legal collections. 

In our experience it would be folly to do away with emolument attachment orders because of a few bad apples. These Attachment orders are an important part of our collection process and done right can improve your yield considerably, and assist the consumer on the road to financial freedom.

*acknowledgements : 
SAFLII
National Credit Regulator

Date Posted: 2014-01-29
Posted By: OVAG Int. SA
Listed under these Business Listing Categories: Financial services, Business services & consultants,

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