Debt collection cannot prejudice the 'poorest of the poor' anymore

Debt collection cannot prejudice the 'poorest of the poor' anymore
CAPE TOWN - Summit Financial and the Stellenbosch Law Clinic, representing 10 of clients, on Friday won a ground-breaking judgement in the Cape High Court that will put a cap on the outstanding garnishee order amounts, and the unregulated and unfair way in which debt collection has prejudiced the “poorest of the poor”, in the past.

Summit chief executive Clark Gardner said that the judgement could dramatically reduce the debts of more than 1.5 million consumers  with garnishee orders on the salaries, and up to 1.3m consumers that have paid their debts from emolument orders, in the last three years.

Gardner said consumers could, on average, achieve up to R5000 savings or refunds on legal fees and other costs on their amounts owing just on small debts, potentially releasing more than R4 billion back into the consumer economy.

Acting Judge Brian Hack declared that the amount owing by debtors under law, would be limited to double the debt, including costs, from the time that the debt was incurred.

Gardner said this order was the most important. Previously, lenders and credit providers had interpreted the law as meaning that the recoverable debt maximum also becomes applicable on the day of a debt judgment, thus making it possible for creditors to claim up to more than four times the original debt.

Some had even interpreted the laws on the maximum recoverable amount from a debt, as more than 4 times the actual debt value, excluding legal fees.

Hack also declared that “all collection costs should include legal fees incurred by the credit provider in order to enforce the monetary obligations of the consumer under a credit agreement charged before, during and after litigation.”

He also ruled that all legal fees on debt collection should be approved by the court taxing master as other legal fees are, or should be agreed to by the consumer.

Gardner said these orders would force lenders to be more responsible about lending, because it would cost too much in legal fees to recover small debts. 

Often, previously, for an outstanding amount of R500, a collecting attorney or lawyer would charge thousands of rands in fees, which the credit provider typically simply passed on to the consumer.

Gardner questioned why it was that organisations with specific mandates to protect the interests of the consumer, such as National Credit Regulator, Banking Association of South Africa and the Legal Practice Council, opposed the court application by Summit and the Stellenbosch Law Clinic, when all parties had agreed before the court that there was “a problem of spiralling debt.”

In doing so these organisations were protecting a debt collection industry that had more than enough resources to oppose the case by themselves, said Gardner.

Hack wrote in his judgement: “The escalation of the indebtedness as a result of costs as set out in the founding affidavit on behalf of the third to twelfth applicants applicants suggest the credit providers are not even paying lip service(s) to the need for fairness and equity. They are running up costs with what appears to be no concern for the consumer.”

Judge Hack further added: “I accept that the result may be that certain of the wealthier institutions and enterprises in this country will have their profits reduced. This is an acceptable result if it has the concomitant consequence that the poor will not be enslave(d) even further in spiralling debt.”