We were shocked to learn that one of South Africa’s largest banks is still doing unlawful set-offs from its customers’ accounts.
A practical example of how set-off works:
Joy owes an amount on her credit card account with ABC Bank. Joy unfortunately loses her job and is unable to pay off her credit card account to ABC Bank. After months of waiting on a payment from the Unemployment Insurance Fund, Joy finally receives a payment into her cheque account at ABC Bank. As soon as the funds are deposited in Joy’s account, ABC Bank decides to take most of the money and sets it off against her credit card debt. Joy is not notified about the debit of her account by ABC Bank. When she checks her banking app later, Joy is horrified to learn that a large amount of her Unemployment Insurance Fund pay-out, which was meant to provide for her and her family, has been debited by ABC Bank.
In the days before the National Credit Act, banks and other credit providers would normally have the right to set-off included in their credit agreements which, in simplified terms, went something along the line of “if you owe us money on your credit card / personal loan / mortgage or asset finance and you do not pay us the required instalments, we will be entitled to take money from your cheque / savings account and set that amount off against any of the debts which you owe us.”
However, on 1 June 2007 National Credit Act (the NCA) stepped in to protect credit consumers and to promote a fair and transparent credit industry.
Section 90(2)(n) of the NCA states that a provision in a credit agreement is unlawful if it permits the credit provider to use set-off to satisfy an obligation of the consumer, except if the consumer has consented to this by way of a standing debt arrangement, or if the credit provider complies with Section 124.
Section 124 allows set-off against a consumer’s account only when:
1. The consumer has agreed to this in writing
2. The set-off may only be applied against an asset, account or amount which the was specifically named in the consumer’s written authorisation
3. The set-off may only be applied to satisfy the obligations specifically named by the consumer in his / her written authorisation
4. The set-off may only be done in respect of amounts specified by the consumer, and on dates specified in the consumer’s written authorisation, and
5. The credit provider is required to give notice to the consumer before set-off may be effected.
Despite the provisions of Sections 90(2)(n) and 124 of the NCA, credit providers continued to apply set-off against consumers’ accounts and did not comply with the strict requirements imposed by the NCA. As a result, the National Credit Regulator which enforces the NCA, and the major South African banks were at loggerheads as to the interpretation and application of Sections 90(2)(n) and 124 of the NCA and their effect on the principle of set-off.
Then in 2019, the High Court in Johannesburg, in the judgment by Judge Keightley in the case of The National Credit Regulator v Standard Bank of South Africa Limited [2019] 3 All SA 846 (GJ), thankfully clarified the position.
The Court found that since the purpose of the NCA is to protect consumers, and set-off can make consumers vulnerable to being deprived of their own income to see to their basic needs before satisfying their credit obligations, set-off doesn’t apply to credit agreements which are regulated by the NCA.
Credit providers are no longer entitled to apply set-off in respect of credit agreements which are subject to the NCA but must rather comply with the requirements set out in Section 124 before any set-off may be done from a consumer’s account.
The fact that some banks are still applying the common law right to set-off against consumers’ accounts despite the court order and the rules of the NCA simply goes to show that consumers are still being short-changed by large financial institutions simply because they can and also due to consumers not necessarily being aware of their rights in terms of the NCA.
Look out for part two of this blog in which we will provide you with step-by-step instructions on what to do should you become the victim of set-off by an unscrupulous bank.
We also have a more detailed and technical version of this article for those familiar with credit law- don’t hesitate to contact us on gerhard@broekmann.co.za if you’d like to read the full-fat version.