Unauthorised debit orders and fraud

Myra Knoesen, FAnews Journalist

In support of compliance and education, Insure Group Managers hosted a seminar, at the FNB Conference Centre in Sandton, to discuss the changing landscape of debit orders in South Africa.

A panel of industry experts including Leticia Mentz, from the Payments Association of South Africa (PASA), as well as panel members from two leading South African Banks - Carol Evans (Rand Merchant Bank) and Matthew Coaker (Mercantile Bank), shared their expert views and opinions on the steps being taken to keep the environment credible, what the future holds for debit orders and the obligations to remain compliant.

The collections landscape 

According to Ian du Toit, Director at Insure Group Managers, “The debit order payment system is a back-bone of our business, our clients and the industry. The increasing trend of unauthorised debit orders and debit order fraud is of great concern. It is important that we educate and inform clients, staff and the industry on what needs to be done to keep the environment and our industry trustworthy,” he said.

According to Mentz, the debit order system is a good system. The issue is that we need to curb debit order abuse.

“EFT disputes rose by 29% from 2016 to 2017. Non-Authenticated Early Debit Order (NAEDO) disputes rose by 50% from 2016 to 2017. Debit order disputes come about as a result of either the user or consumer. The user submits a debit order with no mandate, or where the debit order information is outside the original mandate or where the debit order information is incorrect. The consumer on the other hand, disputes debit orders where valid mandates are in place,” continued Mentz.

“During 2017 there were 2265 instances of ‘no mandate’ resulting in penalties of R2 971 000. This, for example, emphasises the importance of giving a mandate and stating the critical information in voice conversations. The criteria most often absent from voice mandates are: abbreviated short name and beneficiary name,” said Mentz.

Avoid the regulator 

There are a specific set of requirements introduced by PASA to manage Debit Order Abuse. These govern the investigation and reporting process of users and the consequences of processing debit orders without mandates or deficient mandates, including the imposition of penalties and the addition of users who have perpetrated User Debit Order Abuse (UDOA), to the UDOA list.

There are three triggers for UDOA according to Evans, and this is how they are handled by RMB: breach of dispute ratios, accountholder complaint of UDOA and instruction by a regulatory body to PASA and/or its members to investigate UDOA.

“The penalty for non-provision of a mandate (or a deficient mandate) is R1000 per incident. If mandates are unobtainable for more than 10% of a random sample then the user will be flagged on a list by PASA. The user can only be removed from this list if all sample mandates are provided for three consecutive months” said Evans.

“We need to make debit orders work by keeping the bad users out of the system and making consumers aware of their obligations in the debit order system to avoid unnecessary disputes. We need to have these important conversations and narrow the playing field so we have a safe space to work in for both the user and consumer,” continued Mentz.

“We must continue to improve the safety and efficiency of debit orders and address the risks emanating from debit order abuse,” concluded Mentz.

It’s all about the mandate

Evans emphasised that minimum criteria and mandates must be in place. With some of the mandate requirements there is a minimum format that is required to be complied with for written, electronic and voice mandates.

“For the PASA UDOA process the following are deemed crucial criteria: abbreviated short name of the originator, user name, deduction date, deduction amount, surname, initial and bank account number of accountholder. The user must obtain specific acceptance by the accountholder of understanding and obligations in the instances of voice recorded and electronic mandates. In the instance of signed written mandates, the signed (authorised) mandate copies must be provided to the accountholder prior to any payment instructions being submitted in terms of that particular mandate. In the instance of voice recorded and electronic mandates, written confirmation of the mandate must be provided to the accountholder prior to any payment instructions being submitted in terms of that particular mandate and within 30 calendar days of the mandate being entered into,” continued Evans.

 “2017 has seen the launch of Authenticated Collections which will be known as “DebiCheck” and by 2019, will be the only early debit order allowed,” said Coaker. 

“The industry benchmark is for disputes to be below 0.5% of the volumes. As of October 2019 NAEDO will no longer exist. DebiCheck will come into play. All current NAEDO will have to be migrated to DebiCheck or normal EFT debit orders by this date and banks and collectors will need to educate consumers about the advantages of DebiCheck,” said Coaker.

“A key feature of DebiCheck is that electronic consumer confirmation will be required before any such debit order is processed which provides some protection against disputes in certain cases. The mandate types will include fixed, variable and usage based mandates. DebiCheck is confirming, electronically and on a once-off basis, a debit order with the bank,” he continued.

It is all about the mandate and critical requirements in the debit order landscape and dispute arena. Focus on getting the process right, and introduce standards that are going to be maintained going forward,” concluded Coaker.

Editor’s Thoughts:
As du Toit mentioned, the environment is going to change therefore it is important to know and understand what these changes will be and how they will affect us. Do you believe DebiCheck will simplify and ease processes? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts myra@fanews.co.za.