Banking : Bank's right to include credit card debt in the redemption statement
Bank’s right to include credit card amount in the redemption statement in settlement of housing loan debts
Quite often, we are asked whether a bank has a right to include the amount due under a credit card account in the redemption statement when a housing loan is being redeemed.
As a starting point, a bank has a common law right of general lien on all securities deposited with the bank for the balance due from its customers. However this general right of lien may be negated by an express agreement between the bank and the customer or by surrounding circumstances. This necessitates an examination into the relevant security documents to determine whether such general lien may have been reversed.
That said, most if not all banks’ loan documentation would have adequately covered such right. This would normally be under clauses entitled as "Continuing Security", "Liens and Other Rights" and “Consolidation & Set-Off”. Such express clauses will clearly state the banks’ right of lien and consolidation over all monies due by the customers to the banks and effectively the right to set-off any amount standing to the credit of the customer towards settlement of such amount due under any other account including credit card account(s).
As such, the right to include other amounts due in a redemption statement should not really be in dispute. However, we would highlight some potential dangers in doing so.
As stated earlier, no doubt that the banks’ loan documentation would provide for consolidation and a general right of set-off (and mostly without notice to the customer), we would point out that in the case of Eng Ah Mooi & Ors v Oversea Chinese Banking Corp Ltd [1983] 1 MLJ 209 , it was stated that "whether there is or there is no general lien in favour of a bank depends entirely upon the nature of the transaction in respect of which its customer deposited the securities concerned". The Federal Court in that case decided that since another account which the bank had sought to exercise its lien over, already had its own security, the bank could not exercise its right of lien. Of particular concern here is that the Federal Court also took into consideration that by instituting a separate civil suit action on the other account means that the security was purely confined to the first account without any extension to the other account. Without elaborating further on this, suffice to say that problems may arise should a customer contest a bank’s right of lien over the amount due under the credit card account when a civil suit has already been filed for the said credit card debt.
As such, if any exercise of right of lien or to consolidate the said accounts due by the customer is to be undertaken, the said exercise ought to be done prior to any action being taken in the courts. The case of Public Finance Bhd v Hock Seng Housing Development Sdn Bhd [1992] 1 MLJ 442 is the authority as far as consolidation of accounts is concerned whereby it was held that any consolidation of accounts ought to be undertaken before any action is taken. Although the case was a foreclosure matter, we do not see why it cannot also be applied to civil suits. It follows that if there is already a civil suit initiated on a credit card account, any attempts to consolidate thereafter may be held to be too late.
In conclusion, banks do have a right to consolidate the accounts of a customer and a general lien over the securities held in respect of other debts due to the banks by the customer. Such a right translates to including in the redemption statement other amounts due to the bank in a situation where the customer is seeking to redeem his/her loan with the bank. However, any consolidation, set-off or exercise of lien over the said debts should be done with caution due to the possible dangers that may arise should a separate civil suit be initiated on the other accounts.
Robin Lim