Banks and Unauthorized debit orders

The banks in South Africa process millions of debit orders every month. It is just another money making exercise they do in the normal course of their businesses and they cannot verify whether or not the vendors drawing against these debit orders are authorized or not since it is impractical to do so given the volumes coming through the system each month.

The banks have a duty to reverse unauthorised debit orders drawn against your account but the clients are often given erroneous and evasive information by some of the bank staff they encounter. They often say that they cannot reverse or cancel debit orders and they would refer you back to the vendor drawing against the debit order and tell you to contact them to stop sending it through.

Often the only way for a Consumer to resolve this issue is to close the account and reopen a new account at a bank to whom they do not owe money since buried in those credit and bank agreements are often provisions for the bank to take your money directly from your checking or savings account for unpaid or late paid accounts you have with them.

Complaints against the banks should be lodged with the Banking Ombudsman.

The following is taken off the Banking Ombudsman’s website,

  • Understanding the debit orderWhat are the advantages of a debit order?A debit order is a convenient and relatively inexpensive method of payment in terms of which a creditor routinely debits the bank account of a debtor with a specific or varying amount in terms of an underlying agreement entered into between the two parties. The debit orders system satisfies the creditor’s requirement that payments be made regularly and timeously, and obviates the need for the debtor to ensure that accounts are settled on that basis. Payment by debit order can be made in respect of telephone accounts, gymnasium fees, loan repayments, insurance premiums, installment sale premiums and similar transactions.

    What are the dangers inherent in using a debit order?

    The bank customer has to bear in mind that:

  • Varying amounts can be deducted by the creditor from his or her bank account if so arranged in the debit order authorization, for example in respect of payments of a telephone account.
  • Debit order authorizations often are not limited to a specific period of time and could carry on indefinitely, for example in respect of gymnasium membership fees.
  • Although debit order authorizations are usually in writing, voice recordings are sometimes utilised which could lead to misunderstandings as to the terms thereof.What happens if a customer has insufficient funds in his or her account to meet the debit order?The customer’s bank will return the debit order marked “not provided for” to the creditor’s bank account. The creditor is allowed to re-submit the debit order the following month. The creditor cannot, however, increase the value of the debit order to recover arrears. Separate debit orders have to be submitted by the creditor for current and arrear payments. If a debit order remains unpaid on two occasions for lack of funds, the creditor must remove it from the customer’s account system unless the creditor receives a new debit order authorization from the customer to meet future payments.

    How does a customer cancel a debit order?

    Since the debit order relates to an agreement entered into between a creditor and a customer, the customer should inform the creditor of the cancellation thereof in writing to prevent the creditor from placing the debit on the account after cancellation. However, in order to ensure that the bank does not pay the debit order should the creditor inadvertently put it through the customer’s account after cancellation, the customer has to give his or her bank a written stop payment instruction. The customer’s bank is not entitled to give reasons to the creditor as to why the debit order was stopped. In the event that the customer subsequently decides to reinstate the debit order on the same terms and in the same format, a new debit order authorization has to be given by the customer to the creditor, and the customer has to cancel the stop payment instruction at his or her bank.

    How does a customer amend a debit order?

    The customer has to renegotiate the payment terms directly with the creditor and provide the creditor with a new debit order authorization. However, in order to ensure that the bank does not pay the previous debit order should the creditor inadvertently put it through the customer’s account after its amendment, the customer has to give his or her bank a written stop payment instruction which specifically relates to the previous, un-amended debit order authorization.

    What does a customer do if an unauthorized debit order goes through his or her account?

    The customer must advise his or her bank in writing that:

  • He or she did not authorize the debit in question.
  • The debit is in contravention of his or her authority.
  • He or she has instructed the creditor to cancel his or her authority. If the customer lodges the aforesaid complaint in writing with both     the bank and the creditor within 40 calendar days of the date on which the debit went through the account, the bank will reverse the debit upon receipt of the complaint to the creditor’s bank account – whether or not the creditor has funds available in the account. If the complaint is lodged after 40 days, however, the bank has to give the creditor’s bank 30 days registered written notice of its intention to reverse the transaction. If the creditor’s bank fails within this period to prove the validity of the transaction to the satisfaction of the customer’s bank, the latter bank will reverse the transaction.

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