Power Report: a radical system to stop rogue debits

The days of fraudsters plundering consumers' bank accounts through unauthorised debits are over. Well, at least they will be in the next eight months.

One of the "most complex and biggest payment projects" yet undertaken will start in October, albeit a year behind schedule. The system, whereby explicit authentication - basically, a consumer's permission - will be needed before an account can be debited, should end years of debit order abuse.

It's a major bonus for tens of thousands of bank customers who have their accounts raided month after month, sometimes several times a month, by companies they've never heard of.

Last year alone the Payments Association of South Africa shut down 150 small call centres, mainly in Durban, from which dodgy debits were emanating. Unfortunately, these outfits tend to pop up again under new names.

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The illegal amounts withdrawn are usually on the low end - normally around R100 - which is why many slip through undetected by account holders.

That's all about to end with the new Authenticated Collections Project, mandated by the Reserve Bank and driven by the association. In this new system, only debit orders authorised by a consumer can be withdrawn from their account.

This mandatory authentication will be done in various ways - including in person through a card swipe or through an SMS request from the bank when a system operator (the middleman agent handling the debit run) tries to load a debit.

For now, only early debits (known as non-authenticated debit orders, or Naedo) - those deducted immediately after salaries are paid to increase collection rates - will be affected.

Naedo debits, which total 14million a month valued at R9-billion, are the most commonly disputed, with up to 6% contested per month.

It will eventually roll out to all types of debits, including long-term debit orders.

Good news for sure, but what should consumers do in the interim? Alert their banks and request reversals and, where necessary, stop payments.

Banks are bound to honour such requests, but can reinstate debits where a beneficiary proves there was a genuine mandate. This means that consumers using such requests to manage their cash flow - in other words, to avoid paying legitimate debts for a particular month - will be caught out.

The association estimates at least 80% of disputed debits are due to cash-flow issues. Banks agree, saying most disputes relate to this, as well as incorrect amounts and dates.

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Reversals of debits are free at most banks - regardless of whether these are done within or after 40 days of a statement.

Early reversals are immediate, but it becomes a longer process after 40 days. The importance of checking monthly bank statements cannot be overstated. Some bank reversals automatically block all further debit attempts from the same source, but some banks require an additional stop-payment instruction to prevent this.

These stop payments, although charged for (and sometimes refunded), are not guaranteed to stop the fraudsters. A rogue debitor has only to change the name, debit date or amount linked to a debit run to render this pre-emptive block worthless.

Starting next month, when system operators traditionally apply for the annual renewal of their operating licences, the association will require them to submit a list of users (clients), with their dispute ratios.

And banks, too, are under renewed pressure. Not only are they subject to monthly monitoring and obliged to report users that exceed the prescribed dispute ratios, but since last year the association has introduced a R1000 fine per debit where it finds no mandate.

Association CEO Walter Volker said fines handed out to banks - which passed them on to the system operators - were "in the order of a few R100000 every month".

The association also manages what it calls a "review list", during which time users under investigation may not move to another bank. "After the investigation, they're either taken off this list, or moved on to the debit order abuse list, which means ... no other bank may sponsor them into the system," said Volker.

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But why aren't these rogues behind bars?

Once most consumers get their money back, they don't bother to lay criminal charges.

And, if they do, an individual fraud charge of around R100 is unlikely to get the attention of an overburdened policeman.

But all is not lost. The pending Cyber Crimes and Cyber Security Bill - the first round of public comment is complete - will make the misuse of personal information (such as bank accounts) to commit a cybercrime an offence. It will also place certain responsibilities on electronic service providers to combat cybercrime. The bill, however, is some way off.

In the meantime, though, a very useful tool for consumers is a new standardised affidavit containing all the material allegations to prove debit order fraud. The affidavit, available from banks, can be handed in at any police charge office for investigation.

A centralised point for submission is envisaged for the future, which would involve the appointment of a dedicated person at the police.

Pierre Coetzee, the association' s head of legal and regulatory affairs, said: "The reason for the appointment of such a dedicated person is to have a resource with the necessary knowledge to investigate and process debit order fraud more effectively and efficiently."

sub_head_start What it will cost you sub_head_end

Absa: Debit order reversal within 40 days: free online; R26 in branch. Debit order reversal after 40 days: R135.50. Stop payment of repeated debits from same source: included.

Standard Bank: Debit order reversal within 40 days: free. Debit order reversal after 40 days: free; R210 if valid mandate. Stop payment: R47.50.

FNB: Debit order reversal within 40 days: free. Debit order reversal after 40 days: free. Stop payment: R5 (online/app/cellphone); R17.50 (telephone banking); R50 (branch) - fees refundable if debit unauthorised.

Capitec: Debit order reversal within 40 days: R8 (app); R20 (branch). Debit order reversal after 40 days: R30. Stop payment: included.

Nedbank: Debit order reversal within 40 days: free. Debit order reversal after 40 days: free. Stop payment: R48.

• Consumers should contact their banks for further details

sub_head_start Contact Megan Power sub_head_end

E-mail: consumer@sundaytimes.co.za

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