writes Adv. Sbongiseni Khumalo The National Credit Regulator (NCR) has gone to court to get legal clarity on the effect of section 124 of the National Credit Act 34 of 2005 on the common law set-off – which meant that if you owe your creditors, it was well within their rights to debit money from your account as soon as funds become available. And they could debit any amount they consider validly due to them – including legal costs and admin fees. The judgment has provided the much-needed clarity on the position in law and marks the end to a destructive practice wherein set-off is often-times applied without any notice to, or interaction with the consumer. In terms of section 124 of the NCA, the creditor must obtain the consumer’s authorisation to transfer funds from the consumer’s bank account to settle the debt owed by the consumer to the creditor. Prior to the implementation of the act, which came into effect on June 1 2007, the banks had included a clause in the contract when you opened a bank account, which allowed them to deduct funds for set off. However, some banks continue to apply the common law principle of set off on accounts opened after June 1 2007, despite the provisions in the Act. In 2009, Clive Pillay, ombudsman for Banking Services wrote: “the bank can advise you afterwards that it has applied set-off to an account. The argument is that if any prior notice had to be given then the customer would simply withdraw the money from the account before the bank can apply set-off.” So in order to resolve the issue[above], the NCR took the matter to the South Gauteng High Court and it ruled in favour of the Regulator against Standard Bank that the common law set off does not apply to credit agreements subject to the Act. This is no longer allowed under the NCA, so the banks cannot debit an account for a loan repayment unless the customer agrees beforehand. Advocate Sbongiseni Khumalo. Sanlam Group Legal, Risk and Compliance Advisor.