Court slams bank for taking credit agreement debt from accounts without permission

Source: Fin 24, 29/06/2019

The case was brought by the NCR with the aim to establish that
credit providers are not entitled to rely on the common law
principles of `the right of set-off` - also known as the right to
combine accounts - to satisfy consumers` debts owed on credit
agreements subject to the NCA. The common law principles of set-
off allow banks to transfer cash from a debtor`s bank accounts to
pay off other debts held with them (the banks). This could be
credit card debt, for instance.
The respondent in this case, namely Standard Bank, argued that
where the set-off is not addressed in the credit agreement, the
common law principles of set-off continue to apply to many of the
credit agreements concluded between the bank and its clients.
The commission, represented by the Legal Resources Centre (LRC),
intervened in the matter as an amicus curiae (friend of the
court). This was because the commission was of the view that the
matter raised important questions relating to the protection of
the human rights of the marginalised members of society.
`The application of the common law principles of set-off to these
kinds of arrangements takes away the income that indigent debtors
rely upon for subsistence, without their consent or without
affording them the protection offered by the NCA,` according to
the commission.
`This type of action removes the ability of debtors to plan
effectively for the future and/or to pay for the basic necessities
that they require for basic survival.`
The commission argued that the court should take into account the
socio-economic and institutional impact of set-off and compare it
to the debt review process on the one hand and the economic
welfare of citizens on the other.
Evidence presented by the commission indicated that the use of the
common law principles of set-off by banks often renders debtors
incapable of complying with repayment terms in terms of debt
review.
This is 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 commission argued for an interpretation where the NCA is to 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.
According to the commission, the judgment in its favour has
provided much-needed clarity on the position in law and marks `the
end to a destructive practice` wherein set-off is often-times
applied without any notice to, or interaction with, the consumer.
The court has now made it clear that, in terms of section 124 of
the NCA, the creditor must obtain the consumer`s authorisation to
transfer funds from the consumer`s bank account to settle the debt
owed by the consumer to the creditor.
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