For years SA’s banks have unilaterally – and without warning – been taking money from their clients’ current accounts to settle their credit card debt, often leaving too little money to honour debit orders or buy food for the month.
But no more – thanks to a ruling by the Johannesburg High Court outlawing the common law practice known as “set-off”.
This follows an application for a declaratory order brought by the National Credit Regulator against Standard Bank seeking legal clarity on whether set-off had been superseded by the National Credit Act’s Section 124.
The court ruled that that section excludes the operation of the common law set-off in all credit agreements that are regulated by the NCA.
“The NCR welcomes this judgment as it protects consumers from financial difficulties caused by the arbitrary transfer of funds from their accounts by banks”, says the NCR’s CEO, Nomsa Motshegare.
“Banks should obtain permission from consumers before transferring funds from their accounts to pay amounts due under credit agreements.”
But the banks have historically argued that the element of surprise is key in the successful application of set-off, which is why the code of banking practice has not required banks to inform an account holder that they are about to whip money out of one of their accounts.
Naturally, in most cases that would have resulted in that account rapidly being depleted of funds by the account holder before the bank could make the transfer.
The code, which will now have to be amended, does compel the banks to “promptly” inform the account holder after set-off has been applied to one of their accounts, and also allows the bank to freeze an account before applying set-off, “pending a discussion about monies owed”.
But in the many cases this consumer journalist has investigated, that hasn’t happened. The money was simply “re-located”, leaving the account holder without enough to meet their monthly expenses.
A Standard Bank spokesperson, responding to one such complaint some years ago, stressed that the bank used set-off to recover money “as a last resort only”.
“The bank tries to get customers to agree to a pre-payment schedule when they encounter difficulties,” she said. “We do have an arbitration process for customers who feel that the set-off amount has hampered their ability to survive.”
Then banking services ombud Clive Pillay said his office received complaints “from time to time” that banks applied set-off to more than 60% of funds in a client’s accounts, contrary to his office’s recommendation.
“It’s unconscionable for banks to take all, or almost all, the money, as this approach simply compounds the problem,” he said at the time.