DebiCheck: putting an end to illegal debit orders

DebiCheckOne of the more frequent complaints we receive from readers is around illegal debit orders. This is when bogus companies run debit orders of around R100 off people’s bank accounts in the hope that either the bank account holder won’t notice the transaction, or if they do, they don’t know how to reverse it.

In many cases, victims become so frustrated that they just close their bank account and the bogus company keeps the money it has fraudulently removed.

Fraudsters are abusing the Non-Authenticated Early Debit Order system (NAEDO) which is used by various insurance companies and lenders, including banks. These debit orders take priority so they go off in the early hours of the morning after your salary has been deposited. By the time you wake up those debit orders are off your account.

What is required is an overhaul of the debit order system to prevent bogus companies processing illegal debit orders without jeopardising the business of companies processing legitimate debit orders.

In the case of an illegal debit order, you should immediately notify your bank and lodge a dispute. The only recourse your bank has is to reverse the transaction (if it is less than 40 days old) and call for a mandate from the sponsoring bank (the bank the company banks with). You can ask them to put a stop on the same transaction. It is important to note that the bank has no legal right to stop an arrangement between a customer and user unless it is proven to be fraud. In that case if the same transaction is presented to your bank the following month it will not go through your account.

In theory this should work, but in practice what usually happens is that the bogus company then changes the debit order amount and the bank’s system does not pick it up. The customer once again has to go through the process to dispute the amount. This usually leads to frustration and the victim just closes their bank account to prevent further fraud.

Due to the increase in illegal debit orders, some banks introduced technology to make it easier to reverse a debit order, usually through the smartphone banking app.

However, the downturn in the economy has seen an increase in customers using the dispute mechanism to cancel legitimate debit orders to manage their cash flow. Walter Volker of the Payments Association of South Africa (PASA), which has oversight of all payments in South Africa, says that although some debit orders are illegal, the majority of disputed debit orders are in fact valid.

Basically, what is required is an overhaul of the debit order system to prevent bogus companies processing illegal debit orders without jeopardising the business of companies processing legitimate debit orders.

Hence the introduction by PASA of DebiCheck.

DebiCheck will ensure that all early debit orders will be authenticated by the customers through their bank.  Early debit orders are those which go off in the early processing window which is done overnight.

Pilot phase

DebiCheck has already entered a pilot phase but is expected to be complete by October 2019. In order to authenticate a debit order, your bank will contact you electronically to confirm the mandate. This will only be done once, not every month. Your bank will then store this information in its mandate database and will not allow debit orders to be processed outside the agreed terms. You will be able to view all your authenticated debit order agreements through your bank.

This does mean, however, that you will not be able to reverse legitimate debit orders as the mandate has been confirmed.  It is particularly important that if you cancel an agreement or debit order, you inform the company that you have the agreement with and then provide that information to the bank. The bank is a third party to the agreement and cannot cancel a debit order for a valid mandate.

What can you expect from your bank?

It is important to note that in order for the system to be a success, consumers must keep their personal and contact information up to date at the bank. If the bank cannot get hold of you, it will not be able to authenticate a mandate.

Over the course of the next year, you should be contacted by your bank to electronically verify your mandate. This will include the amount, date of deduction and the length of time that the debit order will be deducted.

Banks have already started piloting the new system. According to Charl Nel, head of communications at Capitec, the bank is live with the functionality and has been participating in the industry pilot since July 2017. “All our branches are fully functional and able to assist transaction/savings clients who need to give an authenticated mandate to participants in the pilot for a loan or service contract.  The authentication can be either via a card and PIN, through a branch visit for personal assistance, on our app, USSD or our call centre,” says Nel who adds that Capitec is going to increase its own usage of authenticated mandates or DebiCheck in their branches for their credit products.

“We have completed a month of live transactions in two branches. This will give us first-hand insight into the consumer experience, behaviour and challenges. If that goes well and the DebiCheck system proves to be stable across the industry (uptime and can collect) we will add more branches, on a regular basis, to start increasing our own use.”

This article first appeared in City Press.

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