Ten percent of the average workforce have garnishee orders with some employees receiving nothing at the end of each month as they battle with five, six or 10 garnishee orders swallowing up what they earn, according to Andre Snyman, CEO of Consumer Assist.

On the floors of major industrial giants, factories, department stores and even some financial houses Consumer Assist’s parent company, Debt Control Management has dedicated full time offices helping employees to manage debt. So many employees in such dire financial trouble sees increased workplace theft and fraud, low productivity and absenteeism because of stress-related ill health, employees who can’t afford taxi-fare or petrol to travel to work.

“People sign away their rights on contracts for hire purchase or from micro-lenders and in terms of section 58 of the Magistrates Court Act they don’t have to be informed by a creditor if judgement is taken against them. The court gives a garnishee order allowing money to be deducted  from the salary of that person and three months later that individual looks for more credit because they can’t survive and so the cycle continues,” Anton Viljoen, CEO of Debt Control Management said.

“In the past sheriffs would confiscate furniture, but so much is repossessed now it can’t be sold, so it is better to take off the debtors income.”

But lawyers are often swamped with heavily indebted clients and don’t always manage each closely enough, so a client may pay more than he or she should on the garnishee order. Snyman said that a major retail chain referred a staff member to them for debt counselling. They discovered she had overpaid R30 000 on her garnishee order, which they managed to get refunded to her, but without professional help the woman would have found it almost impossible to do it on her own.

“There are failures in the management of many of these orders,” Viljoen said, “and failures too in ethics.”

Consumer Assist and Debt Control Management run financial wellness workshops in most of South Africa’s blue chip companies – including some of South Africa’s largest financial institutions to help staff “from directors to cleaners” learn money management. The one day course is ideally accompanied by a holistic approach to debt control by the company. “If you walk into a room and ask staff who is over indebted, no one will raise a hand,” Snyman said.

“Being in debt is like being an alcoholic, there is shame, denial and delays in coming forward until the situation has reached a crisis. We advise companies to let us assist over-indebted staff while DCM takes over garnishee orders to relieve pressure from the payroll department and to ensure the employee is not ripped off by creditors.

“If a company has eight percent or more of its staff receiving garnishee orders then that company is at serious risk of a variety of failures in the workplace. There are problems around theft, fraud, absenteeism and an increased risk of strikes because workers become desperate for money, so they apply additional pressure on employers. Unless employers get appropriate assistance they will find their business becomes consumed by the consequences of their employees’ bad debts.”

Slashing interest charges in half

Debt counselling from Consumer Assist has become a real answer for some of SA’s 6m indebted consumers. Established in terms of last year’s National Credit Act, debt counselling slashes interest charges on debt and guides consumers to financial responsibility.

 Snyman gives the example of “a man who owed R36 894, he was paying off R2 950 a month but faced R9 499 in interest charges.  It was going to take him 34 months – almost three years to pay off.

“The debt counsellor restructured his debt so that his monthly payment dropped to R1 900 a month, which meant he had only R5 934 interest payable. The debt owing dropped to R33 352 which he paid in 18 months. The debt counsellor earned R1 500 – which formed part of the R33 352 he paid off. This process saved him (insert figure pls Andre) in interest. He now has a clean credit record with the skills to use his money to create wealth.”

But Snyman and Viljoen warn that the picture is likely to get worse before it improves.  Interim results released in August show that high consumer debt is having an impact on South African businesses, although some are using high interest rates on outstanding debts to keep profits high.

In interims released in the last two weeks banks, retail stores and car dealers reported significant strains on their profits. Standard Bank posted a 16% profit despite a surge in bad personal and business banking loans which as a percentage of total credit worsened to 1.27% from 0.78% seeing the bank’s share price drop 5% this year. The bank is seeing the slowest growth in a decade.

Nedbank reported bad loans to total credit worsened to 2% and at Absa its credit-loss ratio almost doubled to 1.21%.

The head of the Organisation for Economic Cooperation and Development (OECD), Angel Gurria, said last week that the sub prime crisis was not over, describing it as a "collective bankruptcy." He said: "The entire institutional chain, well oiled, all this sophistication, yesterday the pride of the authorities, has been put into question by this collective bankruptcy." He blamed "the banks, the investment funds, intermediaries, the credit rating agencies, the insurers".

His remarks followed the International Monetary Fund (IMF) estimating that the US subprime home loan crisis would cost the international financial system $945bn.

Inflation for July is expected to hit 12.9% surpassing June's 11.6%. The last time inflation was so high in South Africa was in 1981 when prime overdraft rates reached 13% in May and by December was  17%, it hit 20% in March 1982. By March 1983 it dropped to 14%, but climbed fast to hit 25% in 1984 and 1985 before marginally easing.

Interest rates again reached a record high of 25,5% in August, 1998, with prime reaching a low of 10,5% in April, 2005, a figure it last reached in January 1981.

“High interest rates are not unusual for South Africa,” Snyman said, “but what makes this cycle dangerous is that never before have so many consumers had such easy access to so much credit, so the range and depth of the debt crisis is the most intense South Africa has ever experienced.

“A year ago when we began our debt counselling service we received an average of 10 applications for debt counselling; now we receive an average of 120 applications a day.

“It is critical that companies assist their employees to manage their money more effectively by bringing in outside managers for garnishee orders, financial wellness and the assistance of debt counsellors to stop the losses to fraud, theft and low productivity the South African workplace is presently experiencing.”

 

FOR FURTHER INFORMATION   www.consumerassist.co.za 0861 21 22 23 debt counselling call centre

Andre Snyman  CEO  Consumer Assist

082 449 6856  andre@debtcontrol.co.za  / 0861 628 628  (Languages: English, Afrikaans)

James Seele    Consumer Assist  media liaison

082 925 3289  james@debtcontrol.co.za / 0861 628 628  (Languages: Zulu, Tswana, Sotho, English)

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