WESTVILLE COMMUNITY POLICING FORUM
Article020 - Debit orders
Do you know the potential pitfalls when agreeing to debit orders and why they are so convenient?
Debit orders - their pros and cons.
Debit orders are contractual agreements that simplify the payment for services on a regular basis usually monthly. In general they are convenient to both parties as the process is automated and events are documented in the client's bank statements. They are suited for situations where regular payments are to be made over a period of time.
The questions are - how many people have made the effort to read the regulations that apply to debit orders? How many people have negative experiences with debit orders?
It is in your own interest to understand what conditions apply when you sign authority for a debit order so please do not enter such an agreement without reading the regulations or asking for advice from preferably an attorney.
Subject to correction and without prejudice the rules that apply to debit orders at the time of writing quoted from the East Coast Radio ConsumerWatch blog site on 23rd July 2007 are as follows.
Knowler ( East Coast Radio - Consumerwatch)
What is the
difference between "Stop Order and Debit Order?"
A stop order is an authorisation by a customer to his bank to deduct,
at regular intervals, a fixed amount of money from his account and pay it over
to someone else eg. a father may go to his bank and sign a stop order form
authorising his bank to pay a certain amount into his daughter's account on
the 25th day of each month.
A debit order is an authorisation given to the intended beneficiary of
the payment to remit a debit entry to his account eg. a customer takes out an
insurance policy and authorises the insurance company to debit his bank
account each month with the premiums. A magnetic tape containing details of
all debits to be passed will normally be handed by the insurance company to
its bank that will arrange for all the debits to be 'pushed' through to the
insurance company's customers' bank account and credit the insurance company's
bank account with the total.
It must be emphasised that the bank does not check the debit orders
going through to customers' accounts. For example, if a customer authorises a
User to debit his account each month with R100, but the bank debits his
account with R200, the bank will not be able to detect this error. It is
therefore the responsibility of the customer to check his own bank statements
to ensure that the amounts of the debit orders are correct.
2. Who may use
the Debit Order System?
sponsoring Bank - this is the bank that approves the User's access to the
debit order system and keeps an eye on its activities.
3.3 The customer
- this is the person who authorises the User to debit his account.
The User must obtain a written authority from the customer before any
transactions can be processed through the Magtape Service.
There is also provision for Users to use voice-recorded authorities
under certain circumstances. If a voice recording is used, the customer should
thereafter confirm the conversation in writing.
When a debit order is returned "Payment Stopped" on the
instruction of a customer, the User may not process further debits under the
system. The customer has to give their bank a written stop payment
instruction. Once the user receives a returned debit order marked
"payment stopped", the authority under which it was processed is
deemed to be revoked and the user must ensure that no further transactions are
processed under that authority.
If the client closes the
account from which the debit order is paid, the debit is returned
"Account closed". The User is then not permitted to process any more
If a debit order is unpaid on two consecutive occasions for lack of
funds the User must remove it from the system.
You may reverse a disputed debit order from your account within 40 days
of it having been debited to your account, by instructing your bank to do so.
The bank will then immediately reverse the debit.
If you only
report the debit more than 40 days after it appeared on the account you may
have apply to your bank to have it reversed. The bank will query the validity
of the transaction with the company that debited your account. The company's
bank will be given 30 days written notice to prove the validity of the
transaction after which it will be cancelled if invalid, and the funds
manually returned to your account. If the company's bank does produce a valid
mandate for the transaction, then the debit will not be reversed. The bank is
only expected to check for an apparent authorization - which will normally be
the client's signature on an authorization to debit form. The bank is not
generally expected to act as a court in deciding on disputed signatures,
services not provided or any other dispute between the User and the client.
Disputes of this nature are between the client and User to sort out by
litigation or any other legitimate method.
Users may also break the rules laid down by the banks in cases where
customers have endeavoured to cancel their contracts with the Users. They may,
for example, do this by continuing to push through debits where customers have
placed stop payments on the amounts concerned.
contract between the bank and users of the system
you have authorised a debit order, the company concerned cannot transfer any
of its rights to the debit order to a third party without your prior consent.
Companies must produce auditor's certificates at 12-monthly intervals
confirming to the banks the existence of their authority to debit your bank
If there are not enough funds in your account to meet a debit order,
the company can re-submit the debit order the next month. It cannot adjust the
value of subsequent transactions to recover arrears. Separate debit orders
must be submitted for the current and arrears payment.
If you have closed the account, the company should stop submitting
debit orders with immediate effect.
a new precaution, the banks have introduced a process to identify those
companies who have not conformed to the rules of the debit order system. These
companies would then be disqualified from further use of this facility."
End of Quote
Banks and service providers often suggest that debit orders are popular because they are convenient. This is probably correct in most cases. However if something does go wrong it is the consumer who has to do the donkey work in retrieving the situation. The service provider and both participating banks generate an income from the agreement. The client pays a fee for this "convenience" and it is the client who must diligently scrutinise his statements and initiate time consuming interventions when errors occur.
To get some perspective as to what can go wrong and the accompanying grief that is experienced why not visit the consumer complaints website Hellopeter and search a few company names that you know. This site gives praise as well as criticism. It is easy to identify those complaints that centre around seemingly unwarranted debit order mistakes and or deliberate excess transactions that take a lot of time and effort to correct.
link to hellopeter http://www.hellopeter.com/
In my case the negative experience of one service provider has influenced me to cancel all debit orders. It is interesting to note how many will not consider any other form of payment because of the convenience.
It is important to know the facts and be street wise. This article is not intended to suggest that readers avoid debit orders. Simply arm yourself with knowledge and be aware of the terms of engagement.
Submitted by: Andy Tribe