Article contributed by Durban Law Firm - Fawzia Khan & Associates
A High Court ruling in late June 2019 has now firmly established the position that banks are no longer allowed to transfer monies from one account which has a positive balance to repay monies in another account, which you have with the same bank, without your permission.
n application was brought by The National Credit Regulator against Standard Bank. As a result of the ruling, your bank may not move money from your cheque or savings accounts to your credit card, bond or vehicle loan without your permission. Banks would previously debit the accounts of their customers from the accounts where there was a positive balance, to pay another bank account of the customer. This was done without getting the consent of the bank customer.
The legal principle which the banks relied on justifying their conduct was the common-law principle of “set-off”. As a result of this “set off principle”, indigent debtors were faced with much hardship and a number of complaints were lodged with the National Credit Regulator. Even though the court application was brought against Standard Bank, it was a bank practice adopted by all the major banks in South Africa.
The banks took the view that as the National Credit Act did not have a provision dealing with “set off”, the common- law position with regard to “set- off” still applied. This meant that the bank did not need to get consent from the customer before debiting their bank accounts to pay another bank account of that customer.
The South African Human Rights Commission (the SAHRC) applied to and were joined in the application as a “friend of the court”. The SAHRC said this case raised important questions relating to the protection of human rights of marginalised members of society, especially the common-law right of set-off as it took away income upon which indigent debtors relied on for their subsistence without their consent, and without the protection otherwise afforded to them under the National Credit Act.
SAHRC brought in expert evidence led by a debt counselor in which it highlighted the negative impact which “set-off” had on those customers who were under debt review process. Those debtors were unable to comply with their repayment terms because the income with which they intend to make payment is claimed by the bank before they are able to honour obligations to other creditors under the repayment plan. The SAHRC argued that the National Credit Act should be interpreted to prohibit the application of the common- law principle of set-off to debts arising from credit agreements as regulated by the NCA.
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