The ruling is in line with the objects of the NCA which are to promote and advance the socio-economic welfare of South Africans and will provide the much-needed safety net, properly insulating consumers from financial shocks, as credit providers now have to comply with the conditions sets out in section 124 of the NCA.

The case was brought by the National Credit Regulator (NCR) as the credit industry regulator which acts on behalf of all credit consumers in terms of the NCA. The NCR sought declaratory relief that credit providers are not entitled to rely on the common law principles of the right of set-off to satisfy debts that are owed by consumers, in terms of credit agreements, that are subject to the provisions of the NCA. Simply put, the common law principles of set-off allow banks to have the right to transfer cash from your bank accounts to pay off other debts held with them, such as credit cards or loans. It is known as the right to "'set-off", or to combine accounts. The respondent in this matter, 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 SAHRC, represented by the Legal Resources Centre (LRC), intervened in the matter as amicus curiae (friend of the court) as the matter raised important questions relating to the protection of the human rights of the marginalised members of society. In particular, 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. 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.

The Commission submitted that the court should take into regard 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. Using expert evidence led by a debt counsellor, the SAHRC highlighted the egregious impact of set-off on the debt review process. The evidence revealed that the use of the common law principles of set-off by banks often renders debtors incapable of complying with their repayment terms, 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.

Accordingly, the SAHRC argued for an interpretation which would better promote the purport, spirit and purposes of the Bill of Rights and favour the dignity of the debtor. Such an interpretation was one 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.

The judgment has provided the 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.

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.

Ends

Issued by the South African Human Rights Commission

Gushwell Brooks – Communications Co-ordinator Tel: 082 645 8573 This email address is being protected from spambots. You need JavaScript enabled to view it.