In a landmark ruling, the Gauteng High Court has decided that banks may not “raid” accounts to pay debt that consumers owe, for items such as personal loans, credit card debt, or vehicle loans.
The ruling states that banks may not apply the common law principle of “set-off” to credit agreements that are regulated by the National Credit Act (NCA).
The principle of set-off has been used to deduct money from an account that is in credit and then settle or pay another account that is in arrears. Up until now, banks were allowed to do this without notifying you or obtaining your permission, and to debit any amount they consider to be validly due to them.
The National Credit Regulator (NCR) had received complaints from consumers about Standard Bank applying common law set-off and argued that it did not apply to credit agreements subject to the NCA.
The SA Human Rights Commission (SAHRC) argued that the practice of common law set-off deprives poor debtors of income that they rely upon to survive, without their consent or without affording them the protection offered by the NCA.
The SAHRC said the ruling will provide a “much-needed safety net, properly insulating consumers from financial shocks, as credit providers now have to comply with the conditions set out in Section 124 of the NCA”.
In a media release, the NCR welcomed the judgment “as it protects consumers from financial difficulties caused by the arbitrary transfer of funds from their accounts by banks. Banks should obtain permission from consumers before transferring funds from consumers’ accounts to pay amounts due under the credit agreements”.
By Jean Du Toit for City Press via News24
You need to be aware that, if you have outstanding tax debt, the SA Revenue Service (SARS) has the power to reach into your bank account and take the outstanding funds by instructing your bank, as its agent, to allow it access – sometimes even without notifying you.
The chances of this happening increase when the end of the tax year is approaching and when SARS has not reached its budget target.
In fact, the Tax Administration Act provides that SARS may notify any third party to pay any money it holds on your behalf to the receiver. Failure to comply makes the bank (or even your employer) personally liable for your debt.
SARS is kind compared with the French
The French Revenue Authority is known for having piloted this tactic. In France, even if the Revenue Authority has no basis to collect outstanding funds, you will be held liable for the legal fees if there is some fault on your part, such as not responding to notices or not having kept your taxpayer particulars up to date.
Here, taxpayers are especially annoyed if SARS acts on a false tax debt or if proper procedure is not observed. SARS is required to adhere to the procedure prescribed by the act, which imposes procedural requirements on to it – for example, to send a final demand 10 business days before it proceeds with the collection.
Alarmingly, however, there are cases in which SARS has withdrawn funds from taxpayers’ accounts without their being notified. Whether this is a result of deficient communication from SARS or a flagrant disregard for the prescribed tax procedure is not relevant, as the withdrawal can be reversed either way.
Don’t put your head in the sand
Taxpayers must be alert when it comes to any attempts by SARS to communicate with them, as ignorance of the legal process will be to your detriment. The biggest mistake taxpayers make is ignoring their tax status, perhaps hoping the problem will go away.
Here are some useful tips:
Regardless of any assurances by your tax practitioner or friend who has been doing your taxes, draw a “statement of account” from your SARS e-filing profile. If the statement shows an outstanding debt, even if it is erroneous, you must act immediately.
The SARS collection process is not suspended if you have objected to an assessment. You must always do a separate suspension of payment request, and this must contain the correct motivation.
Even when there is an obvious mistake on SARS’ part, incorrectly claiming that you owe taxes, or where a SARS official has assured you that the mistake will be rectified, SARS is not legally bound to solve your problem. SARS’ debt collection department is a separate business unit with its own objectives. It is removed from normal tax assessments and will pursue any outstanding debts if no suspension is in place.
It must be understood that the law must protect society to ensure that everyone pays their taxes, and defaulters must effectively be dealt with. Unfortunately, the innocent taxpayer may also get the treatment under these harsh provisions, but, because tax is ultimately a function of law, there is always a legal recourse in these instances.
* Du Toit is an attorney at Tax Consulting SA.