The High Court rules in favour of the NCR – Credit Providers to implement necessary controls

“Banks should obtain permission from consumers before transferring funds from consumers’ accounts to pay amounts due under credit agreements”, Nomsa Motshegare, Chief Executive Officer of the National Credit Regulator (NCR) commented after a High Court ruling in Johannesburg last week.

The High Court in Johannesburg ruled in favour of the NCR against Standard Bank that the common law set-off does not apply to credit agreements which are subject to the National Credit Act. This follows an application for a declaratory order brought by the NCR against Standard Bank seeking legal clarity on the effect of section 124 of the NCA on the common law set-off.

The practice of ‘set-off’ has long been a part of the common law. It meant that if you owed the bank money, the bank was within its rights to take money out of another account of yours as soon as funds appeared in the account. The bank could take any amount it considered validly due to it – including legal costs and admin fees.

However, the High Court declared that the correct interpretation of section 91(2)(n) and 124 is that it excludes the operation of the common-law right of set-off in all credit agreements that are regulated by the Act, and that all credit providers must adhere to the process as stipulated in section 124 of the Act in respect of all credit agreements falling under the ambit of the Act, insofar as set-off is concerned.

Credit providers are therefore urged to take notice of the outcome of this case and implement the necessary controls and clauses in their credit agreements, to ensure that they follow the correct “statutory set-off” processes as prescribed by the Act.

Moonstone Compliance offers various compliance related services to registered credit providers, including assistance with the implementation of internal controls and credit agreement reviews, to ensure that you comply with the requirements of the Act. Should you require further assistance in this regard, please contact Mieke Whitehead, our Junior NCA Compliance Officer on or 021 883 6178.

Click here to download the comprehensive case summary as provided by Moonstone’s NCA Compliance team.

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