Bank customers will have a nasty surprise if they allow their debit orders to bounce.
When Anil contacted his medical scheme to cancel his premium as he knew he had no funds, he discovered it was too late. The debit order went off and Standard Bank charged a R61 penalty fee.
Anil’s story is not unique and highlights the financial pressure felt by so many households. If you are not managing your debit orders proactively, you will pay severe penalties and it will have a negative impact on your credit record.
Depending on the bank and type of account, bounced debit order fees can be as high as R80 per transaction.
The Payments Association of South Africa (PASA) confirmed that while there had been a decline in the number of disputed debit orders (where debit orders were deducted illegally) there had been a constant increase in the number of unpaid debit orders.
According to PASA, “current assumptions are that the increase seen in unpaid debit orders is directly linked to consumers being cash strapped due to not being paid or being short paid as part of the current lockdown situation. When investigating customer complaints that we receive at PASA we have identified that most disputes that we are seeing are valid debit orders that consumers return, to manage their cashflows.”
Cowyk Fox, Managing Executive at Absa Retail says at this stage the bank has not seen a material shift in the number of returned debit orders or debit order disputes since the lockdown.
Increase in unpaid debit orders expected
“We do anticipate an increase in the number of unpaid debit orders as the economic reality of COVID-19 settles in. We would like to remind customers of the extensive payment relief programs we have in place and that they should contact us to make arrangements before they run into difficulties with their debit orders,” he said.
The banks and PASA have made it very clear that individuals are expected to manage their finances and cashflow and it is unlikely you will receive any sympathy from your bank when those penalty fees are piling up.
“It is the responsibility of consumers to engage with service providers should they not be able to honour any of these commitments, and to make arrangements such as payment holidays or debt restructuring,” says PASA.
Non-payment of debit orders will affect consumers’ credit records and they may find themselves without insurance cover if the policies lapse.
Anton de Wet, Chief Client Officer, retail and business banking at Nedbank, says that debit orders are contractual agreements between customers and creditors.
“If a customer thinks they may be unable to meet their debit order obligations, we encourage them to contact the respective parties to make alternative arrangements. In the case where arrangements are not made and the debit order goes through and bounces, the bank will charge a debit order fee.”
The banks have also warned against using the reversal process to manage cashflow. Fox says banks are not directly involved in negotiating the debit order; the contract is between a customer and the third party.
“It is important to note that the purpose of the debit order dispute/reversal process is to enable the reversal of unauthorised debit orders (debit orders processed without a valid agreement between a customer and the service provider). While we acknowledge the financial stress that has resulted from the COVID-19 pandemic, we caution against consumers using the reversal process as an alternative mechanism for cancelling debit orders with authorised service providers on grounds of unaffordability.
“If financial circumstances have changed, and a customer no longer wants a debit order for any reason, it is imperative that they cancel it directly with the service provider. We firmly caution against the misuse of the debit order reversal process and strongly advise customers whose income has been impacted, to approach their creditors directly to make alternative arrangements.”
Bank within its rights to charge fee
Fox adds that from an industry point of view, it is within the rights of the bank to charge a returned debit order fee to the consumer, assuming an authorised or mandated debit order fails due to insufficient funds.
Ravi Shunmugam, CEO of FNB EFT product house, says qualifying FNB customers who are in financial difficulty as a result of COVID-19 may apply for the Bank’s COVID-19 payment break that has been available since 1 April 2020.
“Our approach is to offer qualifying customers a payment break by paying instalments on their behalf for a period of three months. As a result, we have structured our assistance at prime interest rates to alleviate the financial burden and give customers the flexibility to repay the facility over flexible terms. In instances where customers are taking up this debt relief option, their unpaid debit order penalty fees on their FNB bank account will be reversed, if this debit order is covered by the loan amount of the COVID-19 payment break.”
If you are worried about high bank fees, consider a different account package. Fox says Absa, like other banks, differentiate the pricing for returned debit orders by product.
“Customers who find themselves in financial distress can migrate to a savings account, where the fees for returned payments are lower than on current accounts. Savings account customers only pay for those transactions they use, as opposed to bundled offers where a range of transactions are included free-of-charge in the monthly fee.”
Fox adds that at Absa, account numbers remain unchanged when customers migrate accounts, so there is no need to change debit order instructions or account details with their employer or third parties.
“Furthermore, beyond our payment relief measures, customers who are unsure about their cash flow can also opt for electronic account payments offered through all our self-service channels as opposed to debit orders. Commitments can still be honoured without using a debit order.”
This article first appeared in City Press.