Get breakdown before paying a debt

If you have more than one account with the same bank and you owe money on your credit card which you have failed to pay, the bank may simply help itself to funds in your current account, to minimise your credit card debt. Picture: Bathini Mbatha.

If you have more than one account with the same bank and you owe money on your credit card which you have failed to pay, the bank may simply help itself to funds in your current account, to minimise your credit card debt. Picture: Bathini Mbatha.

Published Aug 5, 2013

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Usually when someone takes money out of your bank account without telling you, much less asking your permission, it’s considered theft or fraud.

But the banks are legally allowed to do this, and they call it “set-off”.

If you have more than one account with the same bank – a current account and a credit card account, say – and you owe money on your credit card which you have failed to pay for some time, the bank may simply help itself to funds in your current account, to minimise your credit card debt.

Of course, the element of surprise is key, so the Code of Banking Practice does not require banks to inform an account-holder that they’re about to whip money out of an account; naturally that would probably result in the account rapidly being depleted of funds by the account-holder before the bank could get its hands on it.

But the code does compel the banks to “promptly” inform the account-holder after set-off has been applied to an account.

The code also allows the bank to put an account on hold – freeze it – before applying set-off, “pending a discussion about monies owed”.

In the cases I’ve investigated, that hasn’t happened. The money has just been “relocated”, leaving the account-holder without enough to meet monthly expenses.

A Cape Town woman who asked that she be referred to only as Mrs Dixon contacted Consumer Watch last week after this happened to her for the third time.

“My husband has a personal account with Standard Bank and my salary and monthly debit orders go through this account. There is just enough money to cover everything.

“My husband has some old Standard Bank credit card debt which he hasn’t been paying, and they have been in contact with him to make arrangements to settle.

“In mid-December, just after my salary was paid into that bank account of his, I noticed that R2 500 was debited to the account. For us, that’s a lot of money to be without. I was furious, both with him and the bank.”

It happened again a few months later, leaving Dixon unable to pay school fees.

“And now it’s just happened for a third time,” she said. “I couldn’t pay the school fees, or the medical aid, which has left us in a very precarious position,” she said.

“I know my husband is in the wrong and he needs to face up to his debt and take it seriously.

“But can the bank just do this, and if so, how is such a large amount justified? They have taken a quarter of my salary each time. It’s crippling.

“And, frustratingly, I can’t even take this up with the bank myself as the account is not in my name.”

Dixon has since arranged for her salary to be deposited into another account and has transferred her debit orders.

Banking Services Ombudsman Clive Pillay said the banks had practised set-off, intended as a “last resort” form of debt collection, for many years.

“At least, with the latest Code of Banking Practice (2012), the banks’ right to set-off has to be brought to the attention of the client when they open the account, and the bank may require a customer’s consent to set-off,” he said.

He also made mention of the code’s requirement that the bank promptly inform the customer after applying set-off, and send them “timely statements” reflecting the set-off position.

As for the amount the banks should help themselves to, Pillay said that at a meeting with banks in 2008 to discuss this, he advised that as a rule of thumb, not more than 60 percent of the money in the account should be taken.

He also urged banks to meet first with the debt-stressed customer in an attempt to agree mutually on an amount to be taken.

“But we get complaints from time to time that banks are taking much more than that,” he said. “It’s unconscionable for banks to take all, or almost all the money, as this approach simply compounds the problem.”

Of course, in Dixon’s case, there was no “padding” in that account, which was used solely to service debit orders.

I took up the case with Standard Bank.

Responding, spokesman Kershia Singh began by stressing that the bank used set-off to recover money “as a last resort only”.

“The bank tries to get customers to agree to a pre-payment schedule when they encounter difficulties, and this was the case with (Mr Dixon). The account in question was handed over to two separate companies for collection and no payments were forthcoming.”

And that’s when set-off was applied.

“We do have an arbitration process for customers who feel that the set-off amount has hampered their ability to survive,” Singh said.

“As long as there is a sufficient reason and proof of financial stress, this procedure can be followed… and Standard Bank will assist (Mr Dixon) should he submit a request for a refund.”

Some of the set-off money has since been refunded to the account. - Pretoria News

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