Debit order disputes on the rise

By Carin Smith for Fin24

Debit order disputes have increased significantly over the last three years, according to the Payments Association of South Africa (PASA).

Yet, it said recent investigations have shown that in the majority of cases, proof that debit orders were indeed authorised by consumers could be provided.

According to PASA, the increase in debit order disputes could mean that companies have bad practices in obtaining such debit order mandates, or that consumers are asking their banks to reverse actual valid debit orders.

Consumers could be doing this, because the reversal of such legitimate debit orders creates temporary cash flow relief for them. PASA emphasises however, that this kind of behaviour by consumers is not acceptable and has become a huge concern for the financial services industry.

As part of a project to reduce debit order disputes, banks are investigating ways to enhance their current dispute and prosecution processes.

Over the last few years PASA has been working with banks to address debit order abuse. Initiatives include – statistically identifying potential problematic companies, refining the minimum criteria for mandates, and managing a debit order abuse list which can result in “rogue companies” being excluded from the system.

Initiatives also include a process to investigate and issue fines or initiating forensic investigations and prosecution when companies do not have mandates or have mandates that do not conform to minimum requirements.

DebiCheck

One of the most pertinent, but longer-term solutions to curb debit order abuse remains the Authenticated Collections project that was started in 2013.

Now close to implementation, the project will deliver a new type of debit order, called DebiCheck. Currently there are 11 banks participating in DebiCheck. Through this new debit order system, a debit order will only be processed to a consumer’s account if the mandate for such a debit order has been electronically confirmed by the consumer.

This means that consumers will be aware of which DebiCheck debit orders will be processed to their accounts – and these debit orders will not be processed by the bank if they are outside the agreed conditions the consumer initially confirmed.

As a result, PASA foresees that the number of invalid debit orders being processed as well as the number of consumer disputes where valid mandates are in place will rapidly decline.

Improving safety and efficiency

Additionally, an interbank committee has been established and mandated to improve the safety and efficiency of debit orders. This is through including new ways to better identify existing users abusing the system, enhanced measures and support to ensure offenders are adequately investigated and prosecuted, and processes that will assist in curtailing improper consumer behaviour.

PASA says consumers continue to have the right to dispute or instruct their bank to reverse debit orders they have not agreed to, or which are processed outside the mandate they have given.

They should continue to be watchful when entering into contracts – verbally, in writing or electronically. PASA also encourages consumers to check their bank statements on a regular basis. Also, not to provide or confirm account information if they are not certain what exactly it will be used for.

The industry is currently involved in the prosecution of certain rogue collectors. PASA believes the new measures it is working on will significantly assist the authorities and improve the success of prosecution.

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