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The South African Human Rights Commission (SAHRC) welcomed the judgment handed down this week by the High Court in Johannesburg in the case between the National Credit Regulator (NCR) and Standard Bank.
The matter related to the interpretation of the National Credit Act (NCA).
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The case was brought by the NCR with the aim to establish that credit providers are not entitled to rely on the common law principles of “the right of set-off” – also known as the right to combine accounts – to satisfy consumers’ debts owed on credit agreements subject to the NCA. The common law principles of set-off allow banks to transfer cash from a debtor’s bank accounts to pay off other debts held with them (the banks). This could be credit card debt, for instance.
The respondent in this case, namely Standard Bank, argued that where the set-off is not addressed in the credit agreement, the common law principles of set-off continue to apply to many of the credit agreements concluded between the bank and its clients.
The commission, represented by the Legal Resources Centre (LRC), intervened in the matter as an amicus curiae (friend of the court). This was because the commission was of the view that the matter raised important questions relating to the protection of the human rights of the marginalised members of society.
“The application of the common law principles of set-off to these kinds of arrangements takes away the income that indigent debtors rely upon for subsistence, without their consent or without affording them the protection offered by the NCA,” according to the commission.
“This type of action removes the ability of debtors to plan effectively for the future and/or to pay for the basic necessities that they require for basic survival.”
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The commission argued that the court should take into account the socio-economic and institutional impact of set-off and compare it to the debt review process on the one hand and the economic welfare of citizens on the other.
Evidence presented by the commission indicated that the use of the common law principles of set-off by banks often renders debtors incapable of complying with repayment terms in terms of debt review.
This is because the income with which they intend to make payment is claimed by the bank, before they are able to honour obligations to other creditors under the repayment plan.
The commission argued for an interpretation where the NCA is to be interpreted to prohibit the application of the common law principle of set-off to debts arising from credit agreements as regulated by the NCA.
According to the commission, the judgment in its favour has provided much-needed clarity on the position in law and marks “the end to a destructive practice” wherein set-off is often-times applied without any notice to, or interaction with, the consumer.
The court has now made it clear that, in terms of section 124 of the NCA, the creditor must obtain the consumer’s authorisation to transfer funds from the consumer’s bank account to settle the debt owed by the consumer to the creditor.