Still no relief for victims of debit order abuse as authentication project delayed

If you’re a victim of debit-order fraud, or have been abused by a company that has a mandate to debit your bank account, there’s still not much you can do to prevent such fraud or abuse.

In April last year, the Payments Association of South Africa (Pasa), which is mandated by the central bank to regulate participants in the payments system, announced that, before the end of 2016, banks would begin electronically authenticating and storing all new debit-order mandates in a bid to stem abuse of the system. But the project was not implemented.

Leticia Mentz, the manager of industry capacity development and communication at Pasa, says the payments industry started working towards implementing what is known as the authenticated collections project in October last year, but the South African Reserve Bank has decided on a “phased approach”. The pilot phase will start in June, and the new deadline for the project is January 31, 2019.

The authenticated collections project is the process whereby you, as a consumer, will electronically confirm with your bank that you are doing business with a company or user and that you agree to the details of the debit order.

Once you have authenticated your debit order, your bank will check the debit-order payment instruction from the company or user against your authenticated mandate to ensure that the debit is within the parameters you agreed to, before processing the debit order.

Electronic authentication might be achieved by an SMS or USSD request from your bank that is then confirmed by you, or you may be required to present your card and enter your PIN inside a store.

Walter Volker, the chief executive of Pasa, says the project will apply to early debit orders only, not normal debit orders.

An early debit order has added features, such as a credit track, which triggers the debit when money goes into your bank account.

“This means that, from a certain date, only authenticated debit orders will be processed in the early processing window, and all other debit orders later in the day. The project introduces new criteria for collecting money in the early processing window,” Volker says.

“Authenticating all early debit orders is a means to protect consumers from unscrupulous companies that attempt to debit consumers’ bank accounts without their permission. As a result, you will know who is debiting your bank account, when they will debit it, and how much will be debited. This new system will also protect companies in that authenticated mandates will not be easily reversible at the payer’s bank.”

Debit-order abuse not only adversely affects consumers; it also has a negative effect on the efficiency of the payment system, Volker says.

Often, companies process debit orders without a proper or valid mandate, or they have no mandate, or use an expired one.

“In other instances, consumers ask their banks to return debit orders which have already been paid, even when a valid mandate is in place.” Consumers do this when they are short of money.

Until the authenticated collections project is in place, all you can do is dispute a debit order with your bank, but not before you can show that you have tried to resolve the dispute with the supplier that debited your account.

If you get no joy from the supplier, you can instruct your bank to load a stop payment on your account. The stop payment will remain in place for only three to six months, depending on the bank, and there is nothing stopping the supplier from using another name or amount to dip into your account at a later date, even if it has no mandate to debit your account.

Clive Pillay, the Ombudsman for Banking Services, says it is regrettable that the authenticated collections project has not been instituted, because it will afford consumers “much-needed protection from unscrupulous operators”. This means that consumers whose bank accounts are being debited either fraudulently or for incorrect amounts must actively monitor their accounts and continue to make use of the stop payment system.

To load the stop payment, your bank may ask you for: the debit amount; the reference number; the beneficiary name; the collection date; and the term of the contract.