Explainer: can South African banks legally deduct from social grants?

People queue to apply for social grants in Cape Town, South Africa. Nic Bothma/EPA

Almost 17 million South Africans rely on social grants. That’s about 30% of the country’s population. So what might first appear to be a small news item is actually an important legal issue: the South African Social Security Agency (SASSA), which administers social grants, has laid criminal charges against Grindrod Bank.

The charges come after grantees complained that debit orders and bank charges were being deducted from grant funds deposited into their accounts.

South Africa spends roughly 4% of its annual gross domestic product on social grants. This places it in the top ten for social support expenditure among developing countries.

SASSA administers a variety of grants, including for children, older persons, disabled persons and war veterans. The payment of these grants is sometimes contracted out to third parties – like Cash Paymaster Services, which uses the banking services of Grindrod Bank. When SASSA contacted the contractor demanding it stop allowing for deductions, Cash Paymaster Services simply referred the matter to Grindrod. The bank says it can’t help SASSA, and the matter is now potentially headed to court.

The agency alleges that the regulations issued in terms of the Social Assistance Act don’t allow for the authorisation of debit orders on social grant monies once these have been deposited into a bank account.

Both the regulations and Act are vague on this and related issues. The question of how to deal with deductions from social grants has made headlines before. Payment agents applied for a declaratory order so they could determine how best to go about matters lawfully.

It’s particularly important to get clarity on this this issue as grantees are in an inherently vulnerable position. There’s a potential for exploitation and it’s unclear who has a duty of protection here. So what does South Africa’s law say about this complex issue?

The rules of interpretation

Social security, banking, property, criminal and constitutional law all intersect when analysing this issue. When it comes to interpreting laws, the general position is that we give words and phrases their ordinary, grammatical meaning to give the most equitable outcome. Only if this still creates vagueness do we eventually ask, among other things, what the intention of the legislature could have been.

The relevant regulations of the Social Assistance Act state that the only deduction the agency, known as SASSA, may directly allow from a social grant is a maximum of 10% in respect of funeral policies. No deductions may be made from a social grant if the agency determines how this is paid – usually through manual payments at designated pay points.

If one follows the rules of interpretation, both of these provisions deal with the position when the grant is under SASSA’s direct control. They relate to what the agency itself may or may not do. The first provision described here doesn’t cover the position after grant funds have been transferred to a bank account. The second only applies in those instances where the money isn’t transferred into a bank at a grantee’s request.

The fact that grant funds are transferred into a bank account, usually with consent from a grantee, is quite key here. In effect, SASSA is removed from the equation after the transfer of the funds. Any issues relating to money are then governed by the relationship between a bank and its customer. The nature of this relationship is partly determined by banking law, principles from South African common law, and the terms and conditions that a bank’s clients may have agreed to when opening their accounts.

This confluence of laws dictates when and how bank charges may be deducted and debit orders instituted. If such deductions are made unlawfully, the remedy lies in the customer’s hands. Usually they are also able to approach the Banking Ombudsman for assistance. Further assistance may be provided through, among others, the provisions of the National Credit Act and Consumer Protection Act.

Issues of ownership and dignity

The principle of legality states that there can be no punishment without a crime and no crime without some law that prohibits certain conduct. Among other things, the prohibited conduct should be generally accepted as wrong and be expressed in clear terms. In terms of Section 30 of the Social Assistance Act the only types of prohibited criminal conduct relate to the frustration of functionaries’ duties, a failure to assist such functionaries if lawfully required to do so, or where false or misleading information has been provided.

It is unclear how the conduct of Grindrod Bank, or any bank for that matter, contravenes these provisions when they deduct money from an account – assuming the deduction is lawfully made in terms of the bank-customer relationship. In fact, Grindrod Bank says the implication of SASSA’s interpretation is that it would have to contravene other aspects of banking law should it wish to comply.

Property laws add further nuance to this issue. One principle of South Africa’s common law is that if money is “mixed” together in such a manner that it is nearly impossible to tell apart – which is what happens when it is paid into a bank account – the rights to that money generally vest in whoever possesses it. As such, the rights attached to any social grant after its transfer would belong to the grantee and not to SASSA. Naturally, there are exceptions and remedies to this situation as well. However, they are mostly of a civil and not a criminal nature, and would mostly be directed to the account holder rather than the bank.

SASSA contends that deductions may not be made from grantees’ private bank accounts. This raises certain constitutional issues. SASSA’s contention amounts to a form of paternalism: it views its grantees as worthy of a different status and believes that financial micromanagement is warranted. Condoning such behaviour would not only flout grantees’ rights to be treated equally, but also their inherent right to be treated with dignity.

Many would agree that social grant holders are vulnerable to exploitation and should be afforded proper protection in terms of the law. But this is not the same as limiting their capacity to freely transact and engage in the economy without good grounds or a proper legislative framework to govern this aspect.

If the legislature wants to introduce such laws, it is naturally free to do so. As it stands, though, such laws don’t exist. It would also be disingenuous to unilaterally impose such duties and restrictions on banks through an overly wide interpretation of current ones.

A very dangerous precedent

There is much to criticise in the steps SASSA has decided to take against Grindrod Bank.

First, it is unclear whether the bank’s alleged conduct is actually criminal. Second, a variety of additional legal issues, both civil and constitutional, potentially arise from this action. Some of these issues are still unresolved; the ones that are already resolved – as I’ve described here – would be in favour of the banks.

Any decision by the National Prosecuting Authority to follow through with such charges and prosecute a bank will set a very dangerous precedent. It may also result in a thorough embarrassment for SASSA and the minister of social development when the matter ultimately heads to court.