Bank helps itself to client’s money illegally

The banks call it “set off”; a dry euphemism for money grabbing.

Here’s how it works - when a consumer owes money on one account, a bank helps itself, with no warning, to money that person has in another account with the same bank.

Typically money is taken from a current account to settle a credit card or personal loan debt.

It’s a highly contentious practice, with only the banks and their attorneys fiercely defending their right to do it.

On its website, the Ombudsman for Banking Services explains that for loans entered into after June 1, 2007, the National Credit Act (NCA) prohibits the banks from inserting a set-off clause in their contracts and prohibits a bank from debiting an account for a loan repayment unless the customer has agreed beforehand that the account can be debited.

But despite this, the banks continue to apply set-off, their attorneys arguing that the NCA doesn’t prohibit them from using the common law principle of set-off.

The National Credit Regulator, which is mandated to enforce the NCA, doesn’t agree with the legal opinions that the banks obtained, but until a court decision outlaws the practice altogether, it will continue.

Banking Services Ombudsman Clive Pillay has asked the banks to apply the principle only as a last resort, and as fairly as possible - by not snatching the person’s entire salary, for starters.

The banks have been known to apply set-off even to prescribed debts in the past but in cases I’ve investigated in the past, swiftly repaid the money after I pointed out that by grabbing the money without warning, they failed to give the consumer the opportunity to raise the defence of prescription.

What is prescription? A debt prescribes - meaning  consumer is no longer legally obliged to pay it - if, in the previous three years or more, the consumer has not made a payment, acknowledged the debt in any way or been summonsed in respect of it.

Until mid-March companies could contact a consumer and ask them to pay a debt which had been dormant for three years or more, and if the consumer didn’t know to raise prescription as a defence against paying, and so agreed to pay, they forfeited their prescription defence and were obliged to pay the debt, plus years of interest and fees.

But since March 13, it’s been illegal for companies to sell or attempt to collect prescribed debt.

Nevertheless, FNB applied set-off in the amount of R650 in late April to Fikiswa Mpololo’s current account for payment of a credit card debt dating back to the financial crisis of 2008/9, a debt she says she hadn’t acknowledged, paid or been summonsed in respect of in the previous three years - in fact a lot longer than that, she told In Your Corner.

If that was the case, FNB’s act of set-off was illegal, because the debt had prescribed.

So I took up the case with FNB.

Responding, Justine Teiwes, FNB credit card communications manager, admitted that after investigation, the bank had found that it should indeed not have applied set-off to Mpololo's account.

“Our system indicated that the acting attorney served Ms Mpololo with a summons. However, when we received the compliant we asked the attorney to provide us with proof of all correspondence relating to the matter.

“It was at this point that we noted that the summons was in fact issued but not served, resulting in an incorrect set-off being applied to Ms Mpololo's account.

The bank has since refunded Mpololo and instructed the attorney in question “to review all the accounts they are working on on our behalf to ensure that the same error has not been made on any other accounts.”

Good plan.

*It is illegal for a company to list a prescribed debt on a consumer’s credit bureau profile, but many consumers, on checking their profiles, have discovered one or more prescribed debts listed, so I suggest you check your record, and then lodge a dispute if there is a prescribed debt listed there.

Check your credit record - don’t let a prescribed debt blot your credit profile and prevent you from obtaining credit.

You are entitled to one free credit report a year from each credit bureau.

Contact details of three major credit bureaus:

• TransUnion: www.mytransunion.co.za, 0861 886 466
• Experian: www.experian.co.za, 0861 105 665
• XDS: www.xds.co.za  (011) 645 9100

If you disagree with a listing - prescribed or otherwise, lodge a dispute with the credit bureau. If, after 20 days, the adverse listing remains, you may approach the Credit Ombudsman for help, by calling 0861 662 837 or e-mailing Ombud@creditombud.org.za

Contact Wendy :

Email: consumer@knowler.co.za

Twitter: @wendyknowler