Debit order fraud in SA: who’s cheating who?

The Payments Association of South Africa (Pasa) claims that the main culprits in most of the country’s debit order fraud cases are not who you might think.

In fact, the organisation lays the blame at one very specific group of people: you.

According to Walter Volger, CEO of Pasa, a “thorough investigation” done by the group revealed that it was consumers who were committing fraud by “unjustly disputing debit orders” which they had legally given mandate for.

In order to combat fraudulent debit orders, Pasa recently introduced a fine system, where the group would fine culprits R1,000 per illegal transaction.

However, Pasa said that during an investigations into a large number of claims – for which it had planned to fine the companies who had generated the debit orders without valid mandates – it was found that it was consumers who were to blame.

“When we checked individual debit orders to see whether legal mandates existed, we were surprised find that in the overwhelming number of cases, mandates did indeed exist,” said Pasa.

The organisation said many consumers had unjustly disputed debit orders when they ran into financial difficulty.

“The scope and magnitude of the problem surprised everybody who is involved in the payment chain, including the banks, payments systems companies, and Pasa.”

Nature of debit orders in question

Debit order fraud is a tricky problem for consumers and the payments companies involved – and banks have been slow to set up any measures to combat the process.

With debit orders, any company with your bank account details and written or voice approval can remove a specified amount from your bank account in terms of the established agreement.

However, this leaves consumers open to fraudulent debits as well, where no approval is given – or voice approval has been given to call centres that trick consumers into giving permission.

In the latter cases, there is a legal mandate present for the transactions – though acquired through dubious means.

According to a 2014 report by Carte Blanche, banks receive an average of 200,000 disputes from customers a month, with regards to “mysterious debits” – usually amounts below R99.

Read: Here is how anyone can take money from your bank account without your permission

Broken system?

According to Fred Steffers, MD of payment systems company SmartCollect, the new information from Pasa highlights something the group has known for a while.

He noted that, while it is evident though that over time the fraudsters and consumer alike have found ways to abuse the system, he wouldn’t describe it as “broken”.

“It is extremely difficult to differentiate between fraud committed by consumers and bogus debit orders submitted by call centres and other users of the debit order system,” he said.

Steffers said it was impossible for the companies who processed debit orders to verify that the mandates on every debit order sent for processing by users was valid.

“We don’t have access to their databases and even if we did, the sheer volume of transactions that are processed every month would make it impossible to check every single transaction.”

Who’s to blame?

The banks have in the past distanced themselves from any responsibility in the process, saying it’s up to consumers to keep track of their finances, and not to fall for any voice approval scams.

In dealing with the fraudulent debit orders, the onus falls on consumers to dispute all unauthorised transactions on an account – which banks recommend be taken up with the party that submitted the debit order.

Failing this route, disputes must be submitted through the bank – a lengthy process for something that should not have happened in the first place.

To date, South African banks have not implemented any measures – such as double-opt-in, or one-time confirmation – to effectively prevent unwanted debit transactions.

According to Steffers, however, the payments industry is currently developing a system that, for the moment, is called “AC” (Authenticated Collections).

The AC system will work on the basis that consumers will be asked to electronically authenticate the debit order before it can be processed.

“Once this system is in place I believe it will go a long way to resolving the problem,” he said.

More on fraud

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Debit order fraud in SA: who’s cheating who?