Financially illiterate miner's debt shocker (part 2)

"It’s a vicious cycle... you get into trouble, you need money, you borrow more money, you get into more trouble."

DAVID BROWN: You were mentioning previously about giving up their right to the process, Section 56…the process is called a consent to judgment and the obtaining of a emoluments attachment order, a garnishee order. The reason why it’s known as a garnishee order is because the employed is the garnishee and the order is placed, the emoluments attachment order is placed on the employer is a relatively easy document to obtain and the sheriff does not have to serve it on the individual, he only has to serve it on the employer, i.e. the garnishee, the person who’s going to do the deduction on behalf of the judgment creditor.

ALEC HOGG: Now, your company, Profile Holdings, of which you’re the MD of, you look after including the Marikana mine on what’s happening there with garnishee orders. Just take us through on the ground, in real simple terms, how many people have got garnishee orders and how much of an impact is it having on take-home pay?

DAVID BROWN: I think as a general rule you’re looking at between 12% and 14% of the labour force of any employer having emoluments attachment orders.

ALEC HOGG: All right, just hold there, we spoke to Mark Cutifani last night from AngloGold Ashanti, let’s hear what he had to say because I asked him the same question.

MARK CUTIFANI: Look, from what I understand across our business there is a percentage of people that are subject to garnishee orders and it is a…I know what the percentage is and it’s a low percentage.

ALEC HOGG: Okay, he says a low percentage, so AngloGold Ashanti maybe are doing the right thing. 12% to 14% that’s pretty high, that’s what, one in eight?

DAVID BROWN: Ja, it’s about average, of course it’s industry dependent and I think the mining industry is particularly high on emoluments attachment orders, the manufacturing industry is too. The financial services industry obviously a lot lower but as a general feel I would say 12% to 14% of employees, particularly in the mining and manufacturing industry.

ALEC HOGG: And just very easy so we can all understand, how do they get this garnishee order, from the minute that a person signs for a loan, how is it that he ends up if he doesn’t repay the loan having lawyer’s fees deducted plus from his salary?

DAVID BROWN: A consent to judgment is an integral part of a micro loan. The micro lender will lend out at interest rates of up to 30% per month. Once the individual, if he’s due to pay, if he borrows the money on the first of the month then he’s due to pay on the thirtieth of the month and does not pay on the thirtieth of the month the consent to judgment kicks in. Within three to four weeks an emolument attachment order can be obtained and then served on the employer for the collection of that money.

ALEC HOGG: And the problem is they get legal fees on top of it, why? Where do the legal fees come in?

DAVID BROWN: The money-lender has to take the consent to judgment to an attorney for him to have the emolument attachment order issued by the court against the judgment debtor.

ALEC HOGG: Cynthia Schoeman is with the Ethics Monitor. You’re listening to this, Cynthia.

CYNTHIA SCHOEMAN: Yes.

ALEC HOGG: Let’s just unpack this so we all understand, so even David Shapiro and I know what’s going on. A guy is on the mine, he borrows R1000, he isn’t able to or doesn’t repay it, the financial institution, money-lender, loan shark, call them what you will, goes off to a lawyer, the lawyer then starts hitting him with up to R20 000 in legal fees if they can’t find him and they have the right because at the time the person borrowed he signed something to deduct it from his salary every month. It doesn’t sound - obviously it’s legal - but it doesn’t sound ethical.

CYNTHIA SCHOEMAN: Well, it’s not entirely legal in some senses if we’re looking at the strict sense of the law. The National Credit Act, in fact, provides that the original capital amount of the debt cannot be exceeded by interest and by collection charges. The loophole, the apparent loophole, at the moment is that the legal profession are querying or arguing that legal fees do not form part of that amount. So the exorbitant legal fees appear to be outside the regulations.

ALEC HOGG: That’s quite nice, David, almost like the Road Accident Fund, have it both ways. No wonder people love lawyers.

DAVID SHAPIRO: Ja, you can push them up, there’s no limit on what you can charge for a lawyer’s fee.

ALEC HOGG: But Cynthia, that’s appalling.

CYNTHIA SCHOEMAN: It’s wicked, it’s wicked, it’s really looking at the most vulnerable in society whom, as you mentioned, are financially illiterate, are legally illiterate and are probably already in some financial stress, and then to apply this to them they’re not in a strong position to be able to make informed decisions and informed choices.

ALEC HOGG: David, if 12% to 14% of people who are working in the mining sector have garnishee orders then clearly they would be wanting more money from somebody, somewhere to make up for this? So Malcolm’s thesis that there might be a link between this and the mining unrest.

DAVID BROWN: It’s a vicious cycle in terms of financially, you get into trouble, you need money, you borrow more money, you get into more trouble. I don’t have enough information to say that it would be an integral part of the current mining unrest but I think it certainly could be a contributing factor.

ALEC HOGG: So what do we do about it, Cynthia?

CYNTHIA SCHOEMAN: In terms of training and informing people that is obviously one route where we should be providing our employees, especially those vulnerable ones, with training beyond just the mechanics of their actual employment but equipping them with these necessary life skills.

ALEC HOGG: David Shapiro, it gets back to financial education?

DAVID SHAPIRO: Ja, it does and I think it’s also probably spreads, one person borrows and so it spreads through the whole industry. People keep borrowing not really understanding that they actually have to pay and what the cost of paying back is and as soon as you fall behind this is the consequence.

ALEC HOGG: Garnishee orders, one of those rotten parts of the financial services system or it can be abused and it certainly has been, as Malcolm Rees’ investigations are showing. He’s still on the story, he’s not going to leave it, we’re going to keep banging on that door until somebody somewhere listens and makes a difference. This has been the SAFM Market Update with Moneyweb.

Interview with Alec Hogg.
on SAFM Market Update with Moneyweb.