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Ensuring debit orders are legitimate is a dual responsibility

Although recent actions taken to tighten up debit order rules will undoubtedly reduce the incidence of disputed deductions from accounts, there is still a mutual responsibility for both the service provider and the customer to ensure that debit orders are correctly authorised, says Standard Bank.

The key to ensuring that debit orders are correct is by using written mandates that authorise a company to process debit orders on a client account on a regular basis, says Ethel Nyembe, Head of Transactional Products and Services Business Banking at Standard Bank. 

“It is important to note that banks fulfil the function of a payment facilitator. A debit order is therefore not a contract between the customer and the bank, but an agreement between the account holder and an external company.”

Typically, debit orders are instituted against accounts when a company has agreed on dates and amounts that are to be deducted from its accounts. An agreement is put in place with the collector of the debit order, and a debit order name is placed on the account. Deductions then begin.

The recent attention paid to unauthorised debit orders appearing on customers’ statements does not make this form of payment untrustworthy or inefficient, Ms Nyembe says.

“Although the spotlight has recently been placed on unauthorised deductions through questionable debit orders, these incidents make up a small percentage of debit order transactions that are processed by banks. 
“Disputes about debit orders often arise because there is no written mandate from the customer authorising the service provider to deduct a set amount for a certain period.  Against this requirement, is the reality that more and more instructions for debit orders are being placed verbally with businesses that contact customers directly,” says Ms Nyembe.

The first port of call for a customer disputing a debit order should therefore be directly to the company providing the service. This company should be able to prove, through a recorded conversation, that the debit order was verbally authorised. If the company originating the debit order cannot provide the necessary proof, the customer should then declare a dispute and request a refund of the money paid out. The Payments Association of South Africa (PASA), responsible for managing payment systems in South Africa, alone, monitors about 30 million debit orders, with a value of about R72 billion, on a monthly basis.”

“The best course of action, however, is to stress that a verbal exchange is not enough to authorise debit order transactions. Customers should insist that a written debit order mandate is sent through so it can be authorised in writing with both parties holding copies of the agreement,” says Ms Nyembe.

At Standard Bank, once we have been alerted by a customer about a potentially fraudulent debit order on an account, the following process is set in motion:

• If a dispute takes place within 40 days of the debit order going off the account, the bank refunds the money immediately.
• Standard Bank then sends the dispute to the ‘sponsoring bank’- the bank with which the business benefitting from the debit order has an account. 
• If the sponsoring bank can provide a valid mandate, the debit order is reinstated.
• If the sponsoring bank cannot provide a valid mandate, this bank is required to repay Standard Bank.
• In the event that the company benefitting from the debit order no longer exists, the sponsoring bank carries the financial loss.

“If a debit order is disputed after the 40 day limit, the sponsoring bank is given 30 days to respond. If they have not responded within this period, all debit order deductions must be returned to the account holder. If the company is no longer operating, the sponsoring bank again carries the loss.” 

“If a company does not have a valid mandate, Standard Bank would move to stop all further debit orders on instruction from their customer by instituting a stop payment,” says Ms Nyembe.

Customers should also be aware that in the event that a debit order has been signed and then cancelled, the onus of proving the cancellation and acquiring financial redress lies between the service provider and the customer. This is not a process in which the bank can get involved.

Customers are urged to minimise the potential of fraudulent debit orders appearing on their accounts by:

• Regularly reconciling bank statements.
• Using an SMS notification service from the bank, so that transactions can be immediately scrutinised and appropriate action taken against unauthorised debit order payments.
• Ensuring that your bank is notified about any irregularities immediately so that ‘stop payment’ instructions can be issued. 
• Alerting PASA about the incident and the service provider involved. The easiest way of doing this is on the PASA website (pasa@pasa.org.za).
• Reporting the matter to the police so that PASA can consider legal action, in addition to removing the company from their system. PASA and your bank should be able to provide a standardised affidavit form, approved by the South African Police Service (SAPS), for obtaining a case number.

“Standard Bank supports the debit order system, which provides a valuable service and convenience to thousands of our customers. This is a viable way to collect recurring debts for services that range from payment of insurance premiums through to monthly car and other instalments.”

“We understand our customers’ needs, and as a facilitator of debit order payments, continually monitor our systems and any complaints lodged about debit orders. Once we have established that there is a pattern where particular companies appear to be the brunt of complaints, we take action to investigate and report on this potential fraud using appropriate channels such as PASA.”   

“It is important to note, however, that the easiest way of ensuring that disputes do not occur is for the beneficiary of the debit order and their customers to have written, mutually agreed mandates in place,” says Ms Nyembe.