You’ve just deposited money into your account and suddenly you see a notification from your bank. Money has been deducted from your account to pay the outstanding debt you have with the bank. Is this allowed?
Justmoney finds out if the banks have the right to transfer cash from your account towards your debt.
Tip: If you’re struggling to pay your debts, click here.
When you borrow from the bank, there is an agreement on how and when your debt will be repaid, which could include a debit order, says Cowyk Fox, managing executive of Everyday Banking at Absa.
This is the arrangement until you start making the payment or there are insufficient funds in the account to allow for the debit order to process successfully. This ultimately results in a breach of the agreement and the lending account falling into arrears.
According to Fox, the deducting of funds from accounts in arrears (which have positive balances) is always the last resort. It’s only applied in instances when all reasonable efforts to make contact with you have been exhausted.
According to common law principles, banks have the right to transfer cash from your bank account to pay off other debts held with them. This practice is known as the right to ‘set-off’.
Section 7.5 of the code of banking practice states the following:
“When you open an account, we will provide you with information that will include clear and prominent notice of any rights of set-off that we may claim over credit and debit balances in your different accounts.
“When you obtain credit from us, we may require your consent to set-off any outstanding amounts against funds available in other accounts you hold with us. Any such arrangement will be concluded in terms of the requirements of the National Credit Act (NCA) if the credit agreement is subject to the NCA.
“We will inform you promptly after we have effected set-off in respect of any of your accounts. You will receive timely statements (if statements are generally produced on the relevant account), which will reflect the setoff position.
“Prior to setting off your debit and credit balances, we may elect to place any of your funds on hold pending a discussion with you on any amount owed to us.”
According to Fox, should you be faced with the unfortunate situation of not being able to meet your loan payments, the bank has processes and tools available to assist you during this difficult period.
He says customers are notified and alternative arrangements or repayment plans are put in place where possible.
“Consistent with our customer-first approach, we make every effort to remediate an arrears situation for the benefit of the customer,” says Fox.
“We do all this to remedy a customer’s arrears position and to protect their credit profile at the credit bureaus,” he adds.
Fox says it’s vital that you immediately engage with the bank when in any financial difficulty. The sooner you do so the sooner the bank will be able to look at the different plans or options it has in place that could assist you.
The Ombudsman for Banking Services of South Africa (OBSSA) states that should the bank attach your entire salary, you should lodge a complaint with it (the bank).
“In the complaint, we suggest that the consumer sets out a detailed list of their income and expenditure,” states OBSSA.
The Ombudsman says you should also be clear about how much of the debt you’re willing to pay each month.
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