South Africa's debit order system is being abused by criminals who are skimming millions of rands off bank accounts.
The Financial Services Board (FSB) and the Banking Council are worried about the abuse of debit orders.
Oppie Opperman, head of market conduct at the FSB, says he is concerned about unregistered insurance companies which may be using debit orders illegally.
We have already laid criminal charges in some cases and are investigating others.
Personal Finance has highlighted problems associated with the debit order system several times. A debit order is a contract signed between you and a company, authorising the company to withdraw money regularly from your account. The bank simply carries out this instruction.
The dangers of debit orders are:
* Practically any company or individual can collect debit orders through the banks without the banks detecting problems;
* You can reverse debit orders, but if the company you have signed a contract with is crooked or inefficient, debit orders will continue to go through and you cannot permanently stop a debit order without closing your account; and
* Debit order processing agencies, which submit debit order instructions to the bank on behalf of companies, open up further opportunities for fraud.
The tactics employed by crooked debit order users include putting orders through your account more than once a month, or side-stepping your reversal order by changing the amount to be deducted so that it effectively becomes a new debit order.
Sometimes the magnetic tape containing the debit order instructions passes between as many as five different people before it reaches the bank, so the opportunity for fraud is great.
All a criminal needs to dip into your account is your bank account details. It is not unknown, for instance, for the cashier who receives your water and electricity cheque to jot down your name and bank details and sell the information.
Personal Finance has learned that a Pretoria businessman who sets up com-panies under different names has been creaming money off bank accounts for years under the guise of insurance premiums or tax services.
A Standard Bank spokesperson said he picked up a debit order batch last year in which amounts of R78 were withdrawn by debit order from many bank clients, mainly teachers from rural areas, by a Pretoria company.
After finding out that the teachers had not signed debit orders with the company, Standard Bank refused to allow the company to use its debit order system. Since then the bank has put in place stringent criteria for all debit order users.
It is believed the Pretoria company may now be using other banks to access the debit order system, raking in thousands of rands from the accounts of BoE and First National Bank (FNB) customers.
FNB spokesperson Ann Bramhill says although FNB has received few complaints from its account holders about money being withdrawn from their accounts without authority by this company, FNB is co-operating with other banks who have received complaints.
A BoE spokesman said the matter was being investigated. Should our investigation reveal any irregularities, the necessary steps will be taken, he said.
Bob Tucker, chairman of the Banking Council, which represents the banks, says the problem of fraudulent debit order users is top priority and is being dealt with by the banks at a senior level.
Banks are looking at ways of rooting out rogues from the system.
Tucker says the banks are considering setting an industry standard to which sponsoring banks (the banks that allow debit orders users into the system) must adhere. At present each bank has it own rules about allowing debit orders to use the system.
Banks also want to educate customers about their rights concerning unauthorised debit orders, he says.
If you find an unauthorised debit order deduction from your account, you have the right to insist that your bank reverses the transaction. Your bank cannot reinstitute the debit order unless it can produce proof that you mandated the com-pany to draw money from your account.
Another matter that is being taken up is allowing you to permanently cancel a debit order by instructing your bank, rather than persuading the company with which you signed the order to cancel it. The banks are looking at ways to implement this change.
Tucker says it is imperative that you check your account because the banks have no method of knowing whether you have authorised a particular debit order.
However, he admits it is morally incorrect for the bank to make it your responsibility to check your account.
The role of debit order agencies will also be scrutinised, Tucker says.
Debit orders are different from stop orders. Unlike debit orders, which are contracts between you and the company you are paying, stop orders are contracts between you and your bank.
Stop orders can only be used where the amount of money to be deducted does not change each time - for instance, for insurance premiums, unit trust monthly investments or home loan payments.
Stop orders are safer, but cannot be used where the amount to be deducted differs all the time (for instance, in the case of electricity, cellphone and telephone accounts).
And many companies insist on debit orders rather than any other form of payment because debit orders give them greater control.
SAFETY TIPS
Avoid using debit orders if you can, but if you have to use them, take the following precautions:
* Make sure you are signing a debit order with a reputable company;
* Never sign a blank debit order authority form;
* Read the debit order authority form carefully;
* Add an expiry date to the order instead of giving a company authorisation to draw money from you bank account forever;
* Insert a maximum amount that a company can withdraw from your account. Make it slightly higher than your usual monthly bill;
* Always check your bank statements and take up unauthorised withdrawals with your bank as soon as possible; and
* Remember that your bank is obliged to reverse an unauthorised debit order unless it can provide proof that you signed an authority form for that withdrawal with a company.