For years, South Africa’s banks have been “grabbing money” from their clients’ accounts to settle debts owed to them — typically home loans, credit cards and personal loans – often leaving them with too little money to honour their debit orders or buy food for the month. But thanks to a ruling by the Johannesburg High Court, this common law practice, which the banks call “set-off,” has been outlawed.
What is set-off?
When a consumer is in arrears on one account, the bank helps itself, with no warning, to money that person has in another account with the same bank. Let’s say you’re behind on your home loan. As soon as funds appear in your day-to-day account, the bank “grabs” any available amount to cover the amounts in arrears, and can even take funds to pay for unpaid legal costs and admin fees.
Set-off and debt review
Since 2007, Octogen has openly and actively opposed the practice of set-off, which can have a crippling effect on the debtor. We have also supported the NCR’s application with a supporting affidavit to the South African Human Rights Commission (SAHRC) who was admitted as amicus curia (friend of the court). Set-off is almost always done without notifying the account holder, leaving them unable to meet their repayment obligations to other creditors or cover school fees and basic necessities. This process further undermines debt review as it often renders debtors incapable of complying with their repayment terms.
What this judgement means
At Octogen, we welcome this ruling as it protects consumers from financial difficulties caused by the arbitrary transfer of funds from their accounts by banks. The court has now made it clear that the bank must obtain permission from you before transferring funds from your accounts to pay amounts due under the credit agreements.