Capitec Battles Legal Woes over Controversial Garnishee Orders

South African banking giant Capitec is currently embroiled in a serious legal tussle concerning the procurement of emolument attachment orders (EAOs), commonly known as garnishee orders. This historic banking practice now poses a significant threat to the financial institution due to litigation brought forward by a company called GORR, which aids clients in contesting such orders and clearing their credit records.

An investigative report by AmaBhungane has put the spotlight on the predatory lending practices by some South African microlenders and their use of garnishee orders to gut the salaries of debt defaulters. Accusations leveled against them include "forum shopping" for sympathetic courts and the utilization of various loopholes in the Magistrates’ Court Act, which previously allowed garnishee orders to be issued without a court's approval.

These methods have reportedly coerced low-income earners into overwhelming debt repayment obligations and, in some cases, involved outright fraudulent activities such as forged documents and fabricated witnesses. This scenario has ensnared countless financially vulnerable individuals within crippling cycles of debt.

A pivotal moment came in 2016 with the Constitutional Court deeming the routine granting of garnishee orders by magistrates' court clerks unconstitutional. The ruling mandated a judge or magistrate's direct involvement in the granting of EAOs and stressed the necessity for these to be issued within the debtor's jurisdiction. Notably, the ruling did not address retrospective applications of this decision, meaning that previously issued garnishee orders would stand unless individually contested.

Although the banking sector has seen an overhaul in EAO-related practices since this landmark judgment eight years ago, it has not been immune to resulting legal confrontations. Capitec, alongside firms such as Bayport Financial Services and Flemix & Associates, finds itself in GORR's crosshairs. The current case initiated by GORR involves a claim for restitution against Capitec pertaining to what it considers an unlawful garnishee order that has affected Dipholony Phefo, a former PRASA Metrorail yard foreman. Phefo, overwhelming evidence suggests, was victimized by the malpractices that have since been rooted out of the system.

The repercussions for Capitec should it lose this battle are substantial, potentially leading to a cascade of similar claims and hefty financial liabilities tied to unjustly amassed debts, inflated fees, and accrued interest. Capitec, however, has countered these accusations by arguing that GORR and the involved attorneys are primarily motivated by financial prospects. The bank has suggested that the plaintiffs should hold the original collectors of the debt accountable, not the microlenders who initiated the loans.

A statement from Capitec to Daily Investor articulated its position, acknowledging the industry's historical embrace of EAO practices while emphasizing a strategic pivot to softer collection methods from 2014 onwards, prioritizing amicable repayment resolutions and only resorting to legal action as a last-ditch measure. Capitec insists that it remains committed to ethical standards and the best interests of its clients, even as it faces this intensified legal scrutiny.