[South Africa] eThekwini Municipality cracks down on ‘predatory loans’ and payroll deductions

In South Africa, the eThekwini Municipality announced that it has engaged with labour unions and is taking steps to regularise payroll deductions following concerns expressed that some municipal staff were facing financial ruin as a result of “predatory loans”, IOL reports.

According to reporting from The Mercury, a municipal labour union flagged loan companies alleged to have trapped workers in a vicious cycle of debt where they were borrowing money every payday just to survive.

These companies reportedly put in a stop order via the employer, allowing them to take loan repayments before employees receive their wages. In one cited instance, a worker earning about R20000 was left with just R1800 after the deductions. These stop orders were allowed as a result of the collective bargaining agreement.

The eThekwini Municipality’s spokesperson, Gugu Sisilana, stated that the municipality had taken steps to regularise the payroll deductions, in light of current legislation such as the National Credit Act and the Basic Conditions of Employment Act.

“The steps relate especially to exploitative micro-lending. The municipality has engaged with labour (South African Municipal Workers’ Union and the Independent Municipal and Allied Trade Union) at a bargaining level as the micro-lenders are contracted directly to labour. Agreement has been reached to regularise deductions and to stop the exploitative practice. The implementation of these agreements is currently underway,” Ms Sisilana said.

The National Treasury reportedly told The Mercury that the government had repeatedly stressed its opposition to debt collection via direct deductions from payroll since such practices can leave employees with little to no take-home pay. Other concerns raised include the fact that the process could give preference to certain credit providers.

“This creates an uneven playing field and negatively impacts the progress made in reforming the debit order systems. It lowers the credit risk for preferred credit providers, which encourages reckless lending, as they fail to thoroughly establish the creditworthiness of their customers,” it said.

The National Treasury said that in December 2013, Cabinet had expressed concern about the high levels of household over-indebtedness.

“They directed the ministers of finance and trade and industry to take measures to assist over-indebted households and prevent them from becoming over-indebted in the future. One of the identified measures was the regulation of credit-linked deductions allowed on employer payroll systems.”

It said that under current regulations for government payroll deductions, discretionary deductions are limited to 40 per cent of a state employee’s salary.

“However, these regulations currently apply only to government payrolls, leaving local government and private sector employees without similar protections.”

But the National Treasury reportedly stated that a draft directive on payments from salaries had been issued by the South African Reserve Bank (SARB) in July for public consultation. The directive is still at the draft stage, however, it would put the onus on employers - in this case, municipalities - to ensure that workers are not being exploited.

The draft directive addresses the issue of payroll deductions and outlines the conditions under which this practice is acceptable. It highlights several issues that should be closely monitored.

Regarding indebtedness, the draft states that there is a risk that unscrupulous financial service providers may offer products without conducting the necessary suitability tests. This could lead to the over-indebtedness.

To monitor these practices, the draft imposes several conditions. It states that employers must obtain the employee’s prior written consent for payroll deductions. Furthermore, employers must demonstrate that their appointed third parties can show that employees will materially benefit from the payroll deduction, whether through convenience, financial gain, or both.

Queen Mbatha - the Independent Municipal and Allied Trade Union leader in Durban - reportedly said the union had studied the draft payroll deductions directive and believed it would help the situation in eThekwini.

“We are saddened and worried by what is experienced by the eThekwini employees in the name of the collective agreements. As much as we own and respect the collective agreements which allow the third party deductions, we implore eThekwini to also play their part and demonstrate and satisfy itself that employees will materially benefit from the payroll deductions.”

Ms Sisilana said the finalisation of the draft legislation will strengthen the City’s current implementation strategy.

Source: IOL

(Quotes via original reporting)

In South Africa, the eThekwini Municipality announced that it has engaged with labour unions and is taking steps to regularise payroll deductions following concerns expressed that some municipal staff were facing financial ruin as a result of “predatory loans”, IOL reports.

According to reporting from The Mercury, a municipal labour union flagged loan companies alleged to have trapped workers in a vicious cycle of debt where they were borrowing money every payday just to survive.

These companies reportedly put in a stop order via the employer, allowing them to take loan repayments before employees receive their wages. In one cited instance, a worker earning about R20000 was left with just R1800 after the deductions. These stop orders were allowed as a result of the collective bargaining agreement.

The eThekwini Municipality’s spokesperson, Gugu Sisilana, stated that the municipality had taken steps to regularise the payroll deductions, in light of current legislation such as the National Credit Act and the Basic Conditions of Employment Act.

“The steps relate especially to exploitative micro-lending. The municipality has engaged with labour (South African Municipal Workers’ Union and the Independent Municipal and Allied Trade Union) at a bargaining level as the micro-lenders are contracted directly to labour. Agreement has been reached to regularise deductions and to stop the exploitative practice. The implementation of these agreements is currently underway,” Ms Sisilana said.

The National Treasury reportedly told The Mercury that the government had repeatedly stressed its opposition to debt collection via direct deductions from payroll since such practices can leave employees with little to no take-home pay. Other concerns raised include the fact that the process could give preference to certain credit providers.

“This creates an uneven playing field and negatively impacts the progress made in reforming the debit order systems. It lowers the credit risk for preferred credit providers, which encourages reckless lending, as they fail to thoroughly establish the creditworthiness of their customers,” it said.

The National Treasury said that in December 2013, Cabinet had expressed concern about the high levels of household over-indebtedness.

“They directed the ministers of finance and trade and industry to take measures to assist over-indebted households and prevent them from becoming over-indebted in the future. One of the identified measures was the regulation of credit-linked deductions allowed on employer payroll systems.”

It said that under current regulations for government payroll deductions, discretionary deductions are limited to 40 per cent of a state employee’s salary.

“However, these regulations currently apply only to government payrolls, leaving local government and private sector employees without similar protections.”

But the National Treasury reportedly stated that a draft directive on payments from salaries had been issued by the South African Reserve Bank (SARB) in July for public consultation. The directive is still at the draft stage, however, it would put the onus on employers - in this case, municipalities - to ensure that workers are not being exploited.

The draft directive addresses the issue of payroll deductions and outlines the conditions under which this practice is acceptable. It highlights several issues that should be closely monitored.

Regarding indebtedness, the draft states that there is a risk that unscrupulous financial service providers may offer products without conducting the necessary suitability tests. This could lead to the over-indebtedness.

To monitor these practices, the draft imposes several conditions. It states that employers must obtain the employee’s prior written consent for payroll deductions. Furthermore, employers must demonstrate that their appointed third parties can show that employees will materially benefit from the payroll deduction, whether through convenience, financial gain, or both.

Queen Mbatha - the Independent Municipal and Allied Trade Union leader in Durban - reportedly said the union had studied the draft payroll deductions directive and believed it would help the situation in eThekwini.

“We are saddened and worried by what is experienced by the eThekwini employees in the name of the collective agreements. As much as we own and respect the collective agreements which allow the third party deductions, we implore eThekwini to also play their part and demonstrate and satisfy itself that employees will materially benefit from the payroll deductions.”

Ms Sisilana said the finalisation of the draft legislation will strengthen the City’s current implementation strategy.

Source: IOL

(Quotes via original reporting)