South Africans are getting fleeced for up to 75% of their monthly pay
South Africans struggling to make ends meet are being fleeced by unscrupulous lenders who are claiming up to 75% of an employee’s paycheck through agreements with their employer.
According to DebtBusters’ second annual Money Stress Tracker, three out of four South Africans feel money stress, which severely affects home and work life and health.
78% of respondents said that they feel money stress, with 94% saying that it affects their home life, 78% their work life and 77% saying it impacts their health.
This stress is a result of stubbornly high living costs in South Africa, which has seen skyrocketing food prices, high interest rates, and record hikes in fuel costs – all of which have eaten into stagnant disposable incomes over the last 18 months – leading despite South Africans towards credit to make ends meet.
However, according to a study conducted by Stellenbosch University’s Law Clinic, a concerning number of creditors are side-stepping laws that restrict garnishee orders to 25%.
A garnishee order is a court order that allows a creditor to approach an employer to deduct money from an employee’s salary or wages to pay off and settle any debt owed by the employee (the debtor).
The study’s lead researcher, Stephan van der Merwe, explained that in South Africa, the formal route to gain a garnishee order is to approach the courts, where the magistrate would look into the matter and decide what amount should be deducted from one’s paycheck.
“This amount, in terms of the law, must be less than 25% of a person’s wage – ensuring what’s left is enough for the maintenance of the person and their dependants,” he said.
However, the research found that unscrupulous lenders are taking advantage of this order.
“When a debtor incurs the loan, the creditor has them sign a loan agreement that includes a clause in the fine print which gives their employers the authority to deduct what’s owed on the instruction of the creditor,” said Van der Merwe.
“Because this happens outside of the formal structures of the courts, we found in the research that amounts of up to 75% of a person’s paycheck is being deducted purely based on the say-so of the creditor, and we’ve seen from some payslips that this resulted in the debtor receiving almost no income,” noted Van der Merwe.
The research gave an example of where a payroll deduction of R11,178 was taken from a salary of just R15,000 – meaning the employee only received R3,822 on payday.
Concerningly, Van der Merwe noted that the research found that often employers were unable to assist their employees with this issue because they were in an agreement with the creditors for the deductions that the debtor signed.
To avoid becoming a victim of this trend, Van der Merwe encouraged South Africans to do proper research into a chosen creditor before signing anything – including contacting the National Credit Regulator to make sure the lender is above board.
Additionally, he recommended that a person make sure that any agreement is explained in complete clarity so that they know exactly what they’re getting into when signing a loan agreement.
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