Court tussle over Standard accessing your funds to settle bank debts

Putting aside the complicated legal argument on a highly-contested section of the National Credit Act, how would you feel if Standard Bank arbitrarily used your current account to pay off your credit card – without telling you beforehand? Standard Bank argues that if they gave you notice you’d simply shift the money to avoid them getting their paws on it – and that they’re legally entitled to it. But what happened to our (Constitutionally backed?) right to autonomy over our financial affairs? Seems to me that Standard wants to avoid the costly and lengthy court battles the alternative bad-debt route requires. Great if you can just push a few computer buttons and Wallah! – problem solved. Another victory for the bean counters whose religion is pragmatic ease of function, not customer service – whatever they may put out in advertising propaganda. Ever tried getting hold of your branch or bank manager? The multiple telephone button pushing options and time-cost is on you. I rest my case about whose ease-of-function they’re after. So, it’s good to see an outfit like the National Credit Regulator taking up a public interest battle that requires getting in the legal heavyweights, not just nailing the odd member of the public to justify its existence like so often happens with such institutions elsewhere. Interestingly the legal provision upon which Standard Bank relies, which it says overrides the subsequent National Credit Act, is called the ‘common law set-off’. So often in court challenges, common-law trumps other legal provisions. We can only hope that in this case it’s different. Not that we encourage rampant credit card sprees by all and sundry. It’s just that there are other ways of holding customers accountable without impinging on their financial autonomy. – Chris Bateman

By Matthew le Cordeur

Cape Town – The National Credit Regulator (NCR) has gone to court to get legal clarity on the effect of section 124 of the National Credit Act 34 of 2005 on the common law set-off, it said on Tuesday.

The NCR applied for a declaratory order in the North Gauteng High Court against Standard Bank, it said in a statement.

Standard Bank headquarters in Johannesburg.

“The typical application of the common law set-off is found in the banking industry where a bank would transfer funds from a consumer’s savings account to settle an outstanding balance on the credit account without the consumer’s authorisation,” said Nthupang Magolego, senior legal advisor at the NCR.

“The consumer’s savings account is debited in order to settle a debt owed under a credit account,” said Magolego.

The NCR is seeking an order from the High Court that the common law set-off has been superseded by section 124 of the NCA. The common law set-off is applied when two persons owe each other and the debts are extinguished by setting them off against each other.   

“This practice can put a consumer in financial difficulties since the consumer can be left with little or no money to pay other creditors or meet their living obligations,” said Magolego.

“The position of the NCR is that a bank must obtain the consumer’s authorisation to transfer funds from the consumer’s savings account to settle the debt owed to the bank under a credit agreement.”

Section 124 of the act says that “before making a single charge… the credit provider must give the consumer notice in the prescribed manner and form, setting out the particulars as required by this subsection, of the charge or charges to be made under that authorisation.”

Banks continue to use set-off despite NCR stance – ombudsman

Clive Pillay, ombudsman for Banking Services, said in a 2009 note that the Code of Banking Practice “only requires the bank to advise you afterwards that it has applied set-off to an account”.

“The argument is that if any prior notice had to be given then the customer would simply withdraw the money from the account before the bank can apply set-off.”

He said the legal opinions by the bank said the NCA did not in any way prohibit the bank from using the common law principle of set-off.

“The National Credit Regulator does not agree with the legal opinions that the banks obtained and remains of the view that the banks may not apply set-off on any loan contracts entered into after 1 June 2007 unless it is done in accordance with the provisions of the NCA – Section 124.

“The current position however is that the banks are applying the common law principle of set-off despite the view of the National Credit Regulator.

“Until the issue is resolved by new legislation or a court of law the banks will therefore continue to apply set-off.”

That court challenge has now started. – Fin24

Source: http://www.fin24.com/Money/Debt/credit-battle-begins-ncr-takes-bank-to-court-over-common-law-set-off-20170117

Bank to fight court bid after consumers complain of debt set-off

By Matthew le Cordeur

Cape Town – Standard Bank will oppose a court bid by the National Credit Regulator (NCR), which wants a court to order that the common law set-off has been superseded by section 124 of the National Credit Act (NCA).

“An application for a declaratory order on the effect of section 124 of the National Credit Act on the common law rule of set-off to obtain legal clarity, has been served on Standard Bank by the National Credit Regulator,” Standard Bank spokesperson Ross Linstrom told Fin24 on Tuesday.

“Our interpretation is that the common law rule of set-off can be applied because section 124 of the National Credit Act does not replace or amend this rule,” he said.

“We are opposing the application.”

The NCR applied for a declaratory order in the North Gauteng High Court against Standard Bank, it said in a statement on Tuesday.

“The NCR had received complaints from consumers, in relation to instances where the bank had taken monies, which had been deposited into their accounts held with Standard Bank and used these amounts to settle arrears on Standard Bank debts,” Jacqueline Peters, manager of investigations and enforcement at the NCR, told Fin24 on Tuesday.

“Consumers in these instances are left with no monies for their ordinary day to day living expenses or other debt obligations, ultimately leaving already over indebted consumers in a far worse situation,” said Peters.

“The typical application of the common law set-off is found in the banking industry where a bank would transfer funds from a consumer’s savings account to settle an outstanding balance on the credit account without the consumer’s authorisation,” said Nthupang Magolego, senior legal advisor at the NCR.

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“The consumer’s savings account is debited in order to settle a debt owed under a credit account,” said Magolego.

Practice can put a consumer in financial difficulties – NCR

The common law set-off is applied when two persons owe each other and the debts are extinguished by setting them off against each other, the NCR explained.   

“This practice can put a consumer in financial difficulties since the consumer can be left with little or no money to pay other creditors or meet their living obligations,” said Magolego.

“The position of the NCR is that a bank must obtain the consumer’s authorisation to transfer funds from the consumer’s savings account to settle the debt owed to the bank under a credit agreement.”

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Section 124 of the act says that “before making a single charge… the credit provider must give the consumer notice in the prescribed manner and form, setting out the particulars as required by this subsection, of the charge or charges to be made under that authorisation.”

An on-going issue between NCR and banks

Clive Pillay, ombudsman for Banking Services, said in a 2009 note that the Code of Banking Practice “only requires the bank to advise you afterwards that it has applied set-off to an account”.

Banks have been going against the NCR’s recommendation for years.

“The National Credit Regulator does not agree with the legal opinions that the banks obtained and remains of the view that the banks may not apply set-off on any loan contracts entered into after 1 June 2007 unless it is done in accordance with the provisions of the NCA – Section 124.

“The current position however is that the banks are applying the common law principle of set-off despite the view of the National Credit Regulator.

“Until the issue is resolved by new legislation or a court of law the banks will therefore continue to apply set-off.” – Fin24

Source: http://www.fin24.com/Money/Debt/bank-to-fight-court-bid-after-consumers-complain-of-debt-set-off-20170118