What is setoff and why was it legal?
A bank setoff happens when a financial institution like a bank, savings and loan, or credit union removes money from a deposit account—checking, savings, certificate of deposit, or money market account—to cover a payment you missed on a loan owed to that institution.
When debt review was launched in 2007, debt counsellors raised the issue of these questionable money grabs from the start, but the South African banks maintained that they have a common law right to apply setoffs. Paul Slot, current NEC of DCASA (Debt Counsellors Association of South Africa), took up the issue with a special task team in 2009 when he presided as president of the association, and it was agreed that the banks would stop the practice.
However, certain institutions found loopholes in the legislation and continued to withdraw money from customer accounts without their permission. Consumers blamed the debt review process for this practice, and many left debt counselling because these money grabs left them in dire straits every month.
Debt counsellors spend an inordinate amount of time to get the balance of these money grabs back on behalf of their clients, and although some bank cooperated and returned some or all of the money, many complaints were still made to the NCR regarding unsolved disputes.
What was the verdict?
In the most recent legal proceedings in this regard was spearheaded by the NCR, in collaboration with Paul Slot and the South African Human Rights Commission (SAHRC). The NCR obtained a declaratory order on an issue with Standard Bank. The SAHRC was admitted as amicus curia, allowing Paul Slot to present an affidavit with evidence that the effect that setoffs interfere with the carefully constructed debt review process.
This affidavit stated that banks that apply setoff under debt review have a crippling effect on the debtor, since setoff is almost always applied without notice to, or interaction with the consumer. He went on to note that since the introduction the NCA, banks would attempt to sidestep the application of setoff by omitting a clause of this nature in their credit agreements. The banks objected to certain elements of the affidavit in 2018, but their application was denied and the SAHRC was granted leave to present Paul Slot's findings.
As a result, the court declared that, in light of Sections 90(2)(n) of 124 of the National Credit Act 34 of 2005, the common law right to set off is not applicable in respect of credit agreements which are subject to the National Credit Act.
This landmark ruling is a great victory for South African consumers and the debt counsellors who fight alongside them to ensure a sustainable return to economic equilibrium. If you are currently overindebted and feel unable to deal with all your monthly repayments, get in touch with a Libertine Consultants representative to learn more about our debt services and credit services. We are here to help you pave the way to a more prosperous future.