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”.