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Monday, January 30, 2017
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Nature of the Case

This Constitutional Court case focused on judicial oversight of debt recovery practices in South Africa, by loan companies against low-income workers. The Court reworded relevant legislation to ensure that no orders to deduct payments from the wages of persons defaulting on small loan payments could be made without proper judicial oversight. In particular, no such order may be issued unless a magistrate, not just a clerk of the court, has authorized the order after being satisfied that the order is just and equitable, and appropriate given a debtor’s financial circumstances.

Enforcement of the Decision and Outcomes

Although the EAOs issued against the Applicants were dismissed as invalid, the Court’s order regarding the MCA does not retrospectively apply to other EAOs in place. The judgment also does not address the validity of underlying judgment debts. Each case must still be dealt with on its own merits. The order does, however, ensure that credit providers may no longer seek EAOs in incorrect jurisdictions or from clerks of court. EAOs may not be issued unless a magistrate has authorized it after considering a debtor’s circumstances.

Significance of the Case

Bad debt and the resulting EAOs fuel a large collections enterprise in South Africa, impacting the lives of millions of people in all regions of the country. During 2007, Summit Financial Partners audited 70 000 of 1,75 million EAOs and found abuses of “…over a billion rand being over deducted from already distressed borrowers and going into the pockets of unscrupulous lenders”. (SJH Van der Merwe. Agora International Journal of Juridical Sciences, Failure to discharge: A discussion of the insufficient legal recourse afforded to judgment debtors in the South African context, 2008, http://scholar.sun.ac.za/handle/10019.1/79636) In the present case, court documents showed that (as at June 2013), the commercial credit industry in South Africa supported 20 million credit consumers out of a population of 52 million.

The Law Clinic initiated the proceedings in the context of more than 10 years of ad hoc interventions and conclusive research confirming the rampant abuse of EAOs. (Theo Broodryk, Manager of the Stellenbosch University Legal Aid Clinic, email message to Alexis Ekert sent on January 16, 2017) It would probably be impossible to ever measure the full social and economic impact of unlawful collections on the lives of debtors and their families. Because of the stigma associated with debt, most people carry this burden with silent shame. Yet people find themselves in this situation not only due to their own irresponsibility, but due to a combination of factors. These factors often include aggressive advertising and marketing, reckless lending, a previously unregulated credit industry, lack of appropriate policies and laws associated with credit, historical disadvantages, a lack of consumer education and desperation to meet basic needs such as food and clothing. (Theo Broodryk, Manager of the Stellenbosch University Legal Aid Clinic, email message to Alexis Ekert sent on January 16, 2017)

In the context of widespread practices of debt recovery that place significant economic and other pressure on vulnerable low-income workers, the judgment is an important confirmation that access to justice requires, among other action, appropriate judicial oversight that takes into account the particular circumstances of each case.

(Updated January 30, 2017)

 

Groups Involved in the Case

University of Stellenbosch Legal Aid Clinic, South African Human Rights Commission

Ruling