Debit-order devilry to be nipped in bud

The customer is not always right - in fact, customers often blatantly take advantage of a system designed to protect them.

Some South African banks have put in place mechanisms for their customers to easily reverse unauthorised debit orders on their accounts, but they are being abused by people who use this as means to avoid payment.

"Many people dispute debit orders because they see it as a practical, relatively painless way to get some money," said a spokesman for the country's largest debt counselling company, DebtBusters.

It's the same story with "charge-back", a mechanism that allows consumers to dispute a credit-card charge with their banks on the grounds that they didn't get what they paid for. They then get a refund from the company via the bank, making it one of the best reasons for a consumer to pay by credit card.

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But thanks to charge-back fraud, this consumer protection has become the bane of retailers' lives.

The Banking Services Ombudsman's office dealt with a spike in disputes related to credit cards last year, a "staggering" 36% of them involving charge-back - more than double the previous year.

Rogue debit orders are a massive problem in South Africa, with syndicates getting their hands on lists of consumer names and their bank account details and then processing thousands of debit orders on those accounts - usually under R100 to avoid detection.

In the past, debit orders - more than 50 million a month - were processed without any checks, but smartphone apps recently introduced by First National Bank and Capitec have given those banks' customers the ability to immediately reverse any unauthorised debits.

The trouble is the apps are being abused by a significant number of people to reverse legitimate debit orders as a means of avoiding payments they have committed to.

In fact, according to the Payments Association of South Africa, most debit-order disputes currently being investigated are not genuine, "but rather consumers asking their banks to reverse debit orders that do indeed have valid mandates".

Most of the debit-order disputing is being done by FNB and Capitec clients, thanks to the "dispute via smartphone" apps.

Last September, four months after FNB introduced the system, the bank limited it to debit orders of less than R200.

"High value" debit orders have to be disputed in less-convenient ways.

Dirk Ehlers, head of Capitec Bank's interbank department, said the bank tried to discourage clients from going ahead with the dispute by telling them of the consequences - including cancelled insurance leaving the person with no valid cover - and a negative impact on their credit score.

The good news is the Payments Association of South Africa has come up with a solution, which will be fair and secure for banks, their clients, and the companies they do business with. And it's very close to being implemented. Called DebiCheck, it will require consumers to authenticate a new debit order before it is processed for the first time - probably via SMS - thus protecting them from rogue debit orders.

And with the authentication on file, rogue consumers won't easily be able to dispute such debit orders.

consumer@knowler.co.za