It's the debit order fraud that’s not serious because everyone does it: so rife that most bank customers do it. It’s joked about on social media at the start January, flippantly dismissed as “may the best debit order win”. Which nobody stresses about because, we reason, we can always catch up payments after “Januworry”.
During the second quarter of last year, the Payments Association of South Africa (Pasa) noted a “tremendous rise” in disputed debit orders - with up to 90% of those disputes being logged by clients who reverse authorised debit orders.
This is not only bad for the companies due legitimate payment, but wreaks havoc on the national payments system, because it interferes with Pasa’s fraud detection efforts, and affects customers’ ability to access credit and the rates for which they qualify.
The debit order system processes more than 55 million payments worth in excess of R80 billion every month. Pasa says when banks submit transactions on behalf of users, they do so on the basis that the debit order is valid.
On average, the association says that, of the 55 million debit orders that go through its systems, about 3%, or 1.5 million, are disputed. And only 10% of those, or 150 000, are genuinely unauthorised.
“This is a major problem for the industry,” Pasa says. “First, customers need to be aware that it is illegal, not to mention unethical, to reverse a debit order they have authorised as payment for a legitimate legal contract or service.
“Second, the millions of monthly reversed legitimate debit orders make it extremely difficult to identify those debit orders initiated by fraudsters. For example, a corporate user that is completely compliant to the rules in every respect and only submits debit orders with valid mandates may still face high levels of disputes through no fault of their own.”
Apart from the obvious issues with not paying for insurances, instalments and services, there’s also the real danger of damaging your credit record.
With disputes so rife - and more likely during economic hardship - trends indicate they spike in January.
The senior director for TransUnion’s consumer interactive business unit, Garnet Jensen, says reversing debit orders has no direct impact on your credit record.
“If you reverse a debit order, including a fraudulent one for a legitimate purpose, there will not be a problem. However, if you reverse a debit order on a payment for a credit account (so for something that has to be paid), and it doesn’t get settled some other way, this will have a negative impact (and reflect as a late payment on your account history).”
David Crossley, a business manager at BDO Wealth Advisers, says: “Allowing a debit order to bounce will not attract the unwelcome attention of a credit rating agency - it is what happens after the debit order bounces that starts to cause the problem.”
He says if a debit order bounces - for instance, on a car repayment - the finance house will notice payment has not been credited your to loan account.
They’ll notify you “politely” that a double debit will be deducted at the end of the next month. If it’s paid, there won’t be problems. But if the double debit bounces, the creditor will insist on immediate payment of both outstanding debit orders, plus interest. You’ll also have to pay the bank’s costs for the dishonoured debits. But if you don’t settle with the finance house, letters of demand are issued and the legal process is triggered.
“It is at this stage that your credit score will take a considerable knock, because not only will you lose the vehicle, but the finance company will blacklist you.
“In addition, if there is still money owing on the vehicle after they have disposed of it, you will be held liable for the balance.
“Your failure to pay the balance could result in the finance company applying to have you sequestrated and declared bankrupt.
"It is a sad fact that to obtain credit, a person needs to prove that they have had debt and have either satisfactorily discharged this debt over time via payments, or are able to maintain payments on existing debt in such a way that they do not draw the attention of the credit rating companies," Crossley says.
Frans Joubert, MD at Salary Management Services, says: “Many people are struggling to keep up with their monthly repayments for bonds, cars, credit cards, loans. The first signs of being over-indebted is when creditor payments seems to fall behind as you are swimming in a sea of expenses that cannot be met. Your monthly expenses thus exceed your monthly income.”
When creditors start hunting consumers for payments it becomes very expensive, with a lengthy legal process which leaves the consumer with legal costs, the original debt and outstanding interest to repay. This will result in higher debt, a judgment and a poor credit rating.