The SA Human Rights Commission argues that the practice of common law set-off deprives poor debtors of income. Picture: MARIANNE SCHWANKHART
The SA Human Rights Commission argues that the practice of common law set-off deprives poor debtors of income. Picture: MARIANNE SCHWANKHART

A far-reaching high court judgment should put a stop to your bank raiding your accounts to pay a debt you owe it, be it a personal loan, credit card debt, or a vehicle loan. 

The Gauteng High Court ruled last week that banks may not apply the common law principle of “set-off” to credit agreements that are regulated by the National Credit Act (NCA).

In a consumer note explaining the common law principle of set-off, the Ombudsman for Banking Services says the banks use it to deduct money from an account that is in credit and use it to settle or pay another account of yours that is in arrears. “For example, they may deduct money from a savings or current account to pay a credit card account that is in arrears and due and payable.” 

Common law set-off has allowed the banks to do this without notifying you or obtaining your permission, and to debit any amount they consider to be validly due to them.  

Last week’s judgment follows an application the National Credit Regulator (NCR) made to the court for a declaratory order on the effect of a section of the Act on this common law set-off. Section 124 of the Act allows for set-off, provided that the creditor has your permission in writing and, in writing, the creditor must specify: the account from which the funds can be withdrawn; the debt which is to be paid; the amount which may be transferred; and the date of the transfer.

The NCR had received complaints from consumers about Standard Bank applying common law set-off and argued that it did not apply to credit agreements subject to the NCA.

In her judgment, which has widespread ramifications for consumers of credit and the banking sector, Judge Raylene Keightley agreed. She said the NCA introduced a “major overhaul” of and “clean break from” the position that preceded it. (The Act became effective on June 1 2007.) 

“The system of set-off established under Section 124 is plainly designed to represent a complete break from the past application of the common law principle of set-off, and its overt purpose is to safeguard the rights of consumers in the set-off process,” she said. 

“Section 124 has, at its heart, the requirement that the consumer who owes a credit provider must have a say in, and must authorise, whether and how set-off is to be applied in respect of credit balances in their accounts.” 

The SA Human Rights Commission (SAHRC), which acted as a friend of the court, argued that the practice of common law set-off deprives poor debtors of income that they rely upon to survive, without their consent or without affording them the protection offered by the NCA. 

The SAHRC said the ruling will provide a “much-needed safety net, properly insulating consumers from financial shocks, as credit providers now have to comply with the conditions set out in Section 124 of the NCA”.

In a media release, the NCR welcomed the judgment “as it protects consumers from financial difficulties caused by the arbitrary transfer of funds from their accounts by banks. Banks should obtain permission from consumers before transferring funds from consumers’ accounts to pay amounts due under the credit agreements”. 

Asked if the bank would apply to appeal the judgment, Standard Bank spokesperson Ross Linstrom said the bank was studying the judgment and was not in a position to comment.