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It all started with one of her workers struggling to pay off a debt, Wendy Appelbaum explains from her favourite chair in her house on the De Morgenzon wine estate in Stellenbosch.
Appelbaum, who owns a wine estate, is a leading businesswoman and philanthropist.
She fronted this week’s debt judgement which experts say will have a ripple effect across the economy.
A major victory was scored when Western Cape High Court Judge Siraj Desai ruled that deductions from employees’ salaries for garnishee orders are illegal.
The National Credit Act makes it compulsory for creditors have to make an affordability assessment before giving credit to those applying for it. Trouble started when one of Appelbaum’s employees bought something on credit, but a proper affordability assessment was not done.
“In the case of my employee, they filled in one on his behalf. They filled in that he paid no rent, no food, nothing to pay and only needed R50 a month to survive. Who lives on R50 a month? He has five children. They [microlenders] break all the rules because they get away with it as the industry is not regulated.”
Garnishee orders, as they are colloquially called, are emolument attachment orders that allow deductions to be made straight from the pay of employees who default on loans and other credit extended to them. Through his judgement, Desai has managed to strike down several common practices that can enslave workers.
According to Summit Garnishee solutions, a company that audits payrolls for suspect garnishee orders, 40% to 50% of these orders are issued in wrong jurisdictions, making them illegal.
This means of the estimated 1 million garnishee orders that have been granted, as much as 400 000 of could be unlawful.
Appelbaum estimates that debt collectors steal about R5 billion from the poor by overcharging on interest, legal fees and tracing fees imposed on over-indebted borrowers who default on loans.
She also doesn’t understand how so many garnishee orders can be obtained in courts that are far from where people borrow money. This, she said, opened the whole system up to abuse.
“They bribe the clerks of the courts in small towns. How can it be possible that in a tiny town, up to 300 to 350 garnishee orders are made a day, off jurisdiction without it being absolutely rotten to the core? There is such a gross abuse of the system.”
Appelbaum is scathing in her criticism of government, which she says has taken little action despite studies done by the University of Pretoria in 2008 and 2013, respectively, which made recommended how to deal with the issue of unsecured lending and garnishee orders.
The study recommended that salary attachment orders be obtained in a court that has jurisdiction over the indebted employee’s business premises. It also found that in cases where it is suspected that an indebted employee will not take home enough money to live off after the money owed is deducted from their salary, they should be able to negotiate that less money is deducted from their pay.
“Nothing was done. It is a serious dereliction of duty to the poor by the minister and the National Credit Regulator.”
Appelbaum believes it’s unfair that government has a cap on how much can be deducted out of civil servants salaries who default on repayments to creditors when similar caps are not in place for other indebted workers.
“Government has a cap on the amount that can be deducted from its own employees – only 30% of their salaries can be deducted for debt, but for the public there is none? How is that pro-poor? Makes you think, doesn’t it?”
The Western Cape High Court noted that many of the garnishee orders were granted in courts in smaller and far flung towns where applicants have probably never been, making it difficult for them to go and challenge the orders before they are granted.
She said micro lenders were the worst, granting loans to people they know have little chance of repaying, meaning that the interest on the loan increases tremendously when they expectedly default.
“My employee was already in default when they gave him another loan. They knew he could not pay, but it was in their best interests.
“That is how they maximise their interest and benefit – through garnishee orders.”
She said it was even more worrying that civil society had intervened on behalf of the poor when it should have been government that took up this issue on their behalf.
“When civil society has to do the work of government, there is something seriously wrong. And this is really what this case is about.”
Appelbaum got involved after she made a phone call and then visited the local sheriff’s office where she learnt that up to 350 garnishee orders were delivered every week in Stellenbosch from just one debt collector, who was a respondent in the case.
“I got into my car and drove to the magistrates’ court to say I was just an employer who did not really understand this stuff. ‘Here are these garnishee orders. Can you tell me if they are right or wrong?’ He took one look at them and said they were wrong.”
Appelbaum did her research and connected with the University of Stellenbosch’s Legal Aid Clinic and law firm Webber Wentzel. The firm took up the matter pro bono.
