|In casu, the issue for the court’s determination was whether sections 90(2)(n) and 124 of the National Credit Act, 34 of 2005, (“the NCA”) render the common law right of set-off inapplicable in respect of credit agreements that are subject to the NCA.
The common law right of set off allows one debt to be cancelled by another in circumstances where debts are mutually owing between two parties so that each is simultaneously the debtor and the creditor of the other.
Practically, the above position means that a commercial bank, such as Standard Bank (“the Respondent”), can deduct funds from the account of its clients, without their consent, whenever it is satisfied that such clients owe it money. It would then be for that client, at its own cost, to invoke a remedy available to it in law should it feel aggrieved.
The National Credit Regulator’s (“the Regulator”) position was, as previously stated, that the common law position is in fact ousted by sections 90(2)(n) and 124 of the NCA.
The facts, briefly stated, are as follows:-
- the Regulator brought the application on behalf of all credit consumers, pursuant to its statutory mandate to monitor the consumer credit market and industry to ensure that prohibited conduct is prevented or detected and prosecuted;
- the Regulator sought an order declaring that the common law principle of set-off had no application to credit agreements as envisaged in the NCA despite it being a common practise among commercial banks for the satisfaction of outstanding debts;
- the Respondent, had debited the accounts of its clients without their consent in satisfaction of outstanding debts, and alleged that this practise was an imperative tool for debt recovery and within their common law rights of set-off.
In argument, the Respondent contended that on a proper construction of the NCA, it is evident that the legislature had not intended to exclude the application of set-off to credit agreements under the NCA.
In this regard the Respondent contended that had the legislators intended to exclude the application of set-off to credit agreements, such exclusion would have been expressly stated in the NCA.
Ultimately, the Respondent therefore argued that where a credit agreement (which is subject to the NCA) is silent on the issue of set-off, the common law position should continue to apply.
The thrust of the Applicant’s argument was that the application of the common law principle of set-off to credit agreements under the NCA, as applied by the Respondent in the present case, lacked the necessary safeguards to protect consumers and was at odds with the underlying purpose of the NCA.
Therefore, if the interpretation of the NCA advanced by the Respondent were to be accepted by the court, the purpose of the NCA would be greatly undermined.
|The court held that the common law principle of set-off was not applicable to credit agreements regulated by the provision of the NCA.
The court found that the promotion and advancement of the socio economic welfare of consumers is a central objective of the NCA, and as such the NCA requires credit providers to comply with section 124 of the NCA.
Sections 90(2)(n) and 124 of the NCA set out a set-off regime which affords much needed protection to marginalised members of society who cannot afford to invoke legal remedies where they feel aggrieved. For example, in terms of section 124, inter alia, for set-off to be valid, the consumer’s prior authorisation is required, in writing. It was inconceivable
Therefore, the court concluded that in order for set-off to be lawful in the context of credit agreements, compliance with the NCA is necessary. Pursuant to the aforesaid, the court concluded that the common law principle of set-off does not apply to credit agreements under the NCA.
The same would apply mutatis mutandis in respect of any other parties to any other credit agreements under the NCA.
|This case has set a precedent such that commercial banks require the consent and/or authorization of their clients before they set-off debts apparently owed by their clients against their client’s accounts.|
Written by Sethu Khumalo and Andrew Lawrie