Bank to fight court bid after consumers complain of debt set-off

Cape Town - Standard Bank will oppose a court bid by the National Credit Regulator (NCR), which wants a court to order that the common law set-off has been superseded by section 124 of the National Credit Act (NCA).

“An application for a declaratory order on the effect of section 124 of the National Credit Act on the common law rule of set-off to obtain legal clarity, has been served on Standard Bank by the National Credit Regulator,” Standard Bank spokesperson Ross Linstrom told Fin24 on Tuesday.

“Our interpretation is that the common law rule of set-off can be applied because section 124 of the National Credit Act does not replace or amend this rule,” he said.

“We are opposing the application.”

The NCR applied for a declaratory order in the North Gauteng High Court against Standard Bank, it said in a statement on Tuesday.

“The NCR had received complaints from consumers, in relation to instances where the bank had taken monies, which had been deposited into their accounts held with Standard Bank and used these amounts to settle arrears on Standard Bank debts,” Jacqueline Peters, manager of investigations and enforcement at the NCR, told Fin24 on Tuesday.
“Consumers in these instances are left with no monies for their ordinary day to day living expenses or other debt obligations, ultimately leaving already over indebted consumers in a far worse situation,” said Peters.

“The typical application of the common law set-off is found in the banking industry where a bank would transfer funds from a consumer’s savings account to settle an outstanding balance on the credit account without the consumer’s authorisation,” said Nthupang Magolego, senior legal advisor at the NCR.

“The consumer’s savings account is debited in order to settle a debt owed under a credit account,” said Magolego.

Practice can put a consumer in financial difficulties - NCR

The common law set-off is applied when two persons owe each other and the debts are extinguished by setting them off against each other, the NCR explained.   

“This practice can put a consumer in financial difficulties since the consumer can be left with little or no money to pay other creditors or meet their living obligations,” said Magolego.

“The position of the NCR is that a bank must obtain the consumer’s authorisation to transfer funds from the consumer’s savings account to settle the debt owed to the bank under a credit agreement.”

Section 124 of the act says that “before making a single charge… the credit provider must give the consumer notice in the prescribed manner and form, setting out the particulars as required by this subsection, of the charge or charges to be made under that authorisation.”

An on-going issue between NCR and banks

Clive Pillay, ombudsman for Banking Services, said in a 2009 note that the Code of Banking Practice “only requires the bank to advise you afterwards that it has applied set-off to an account”.

Banks have been going against the NCR's recommendation for years.

“The National Credit Regulator does not agree with the legal opinions that the banks obtained and remains of the view that the banks may not apply set-off on any loan contracts entered into after 1 June 2007 unless it is done in accordance with the provisions of the NCA – Section 124.

“The current position however is that the banks are applying the common law principle of set-off despite the view of the National Credit Regulator.

“Until the issue is resolved by new legislation or a court of law the banks will therefore continue to apply set-off.”

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