Banks have defended the controversial debit order system, claiming that it
is an inexpensive and efficient way to pay your accounts.
After receiving multiple complaints from readers, Personal Finance asked
banks what they do to ensure that the debit order system is safe. Readers
complain that the system can easily be abused by dishonest or inefficient
companies who deduct money from their accounts without authorisation.
Banks say they check up on new companies when they apply to use the debit
order system. But once an order is in place, the banks only do a random
check from time to time.
Stephen De Blanche, senior manager, electronic banking division at Nedcor,
says companies wanting to use the debit order system are subjected to the
same credit vetting process as you are if you want a loan. Limits are
approved by the bank`s credit department after they have scrutinised the
financial statements and credit references.
"Approval of these facilities is not taken lightly as the ultimate
responsibility and risk for the introduction of these transactions to the
banking system is borne by ourselves. We believe these measures, although
reactive, are adequate. The banking industry is aware of increased fraud
around this facility and the industry is trying to manage the risk," he
says.
Luigi Magnelli, general manager, Banking Products at Absa, says the bank
undertakes a complete credit check on the potential user. The user is then
registered with the Automated Clearing Bureau, which processes payments
between banks and a contract is set up between the user, the bureau and
your bank. The measures undertaken are essentially to establish the
financial stability and creditworthiness of the user, but the bank cannot
ensure that the user is honest, he says.
The agreement to debit your account is held by the user who must obtain a
signed debit order request from you. As the agreement to debit your account
is between you and the debit order system user, if a dispute arises you
have to take it up with the user. You can however request your bank to stop
payments in advance until the dispute can be sorted out.
Barry Swart, of MC Solutions, a sister company of FNB that is responsible
for corporate and commercial electronic banking systems, says you can, at
any time, ask your bank to reverse a debit order.
Should the company that took the money from your account no longer have
enough money in its account for the transaction, it becomes the bank`s
responsibility to recover the money. This means that the consumer is not
out of pocket, he says.
If the bank becomes aware of any debit orders being requested without the
necessary authorisation from you, it can reverse the transactions and ban
the company from using the system. Overall though, the debit system is an
effective and efficient system, Swart says.
"We don`t believe the answer lies in consumers placing stop orders with
their banks instead of debit orders. Stop orders are more expensive and are
irrevocable once they have been processed," he adds.
Absa`s Magnelli says because of the volume of debit orders received - on
average one million transactions take place a day at peak periods - ongoing
checks of every transaction would be extremely costly and virtually
impossible for the bank.
The banks "act in good faith on behalf of the user", he says.