Generally, a valid debit order deduction requires authorization in terms of a written or oral agreement between the consumer and the service provider (a debit order mandate). This is an agreement by which the consumer (the payer) gives the service provider (the user or collector) permission to make repeated deductions of a set amount from the consumers bank account, usually at monthly intervals. Such deductions are only legally valid to the extent that the consumer has provided consent for them in terms of a binding debit order mandate. Problems commonly arise at the stage of consensus. The consumer may debate having approved the specific amount which is deducted, or may deny having given consent for a debit order at all.
Under its authority in terms of the National Payment System Act, 1998, and prompted by the multitude of complaints received in recent years with regard to debit order abuse, in 2017 the South African reserve Bank (SARB) issued a directive (Directive No. 1 of 2017) aimed at addressing, among other things, the “growing number of disputes by payers relating to unauthorised debits and user complaints of illegitimate payer-initiated reversals”. The Directive requires that a debit order mandate be authorised by the payer in advance of the service provider making any deductions.
The ‘Authenticated Collections’ initiative was launched with the objective of creating greater security for parties, increasing the safety and efficacy of debit order collections and ensuring that a secure debit order is approved by the consumer upfront. As part of this initiative, PASA, the body which regulates its members in the South African payments system, in collaboration with various stakeholders, was tasked with developing new authentication options for debit orders in order to give consumers the option of authorising future dated debit orders.
Debicheck is the result of that mandate: a new system for the electronic authorisation of debit order mandates which is aimed principally at decreasing the amount debit order disputes and invalid debit orders being processed to consumers bank accounts. In short, Debicheck hopes to give consumers a greater degree control over the debit orders being processed to their accounts, and give service providers greater reassurance that their deductions will not be disputed.
A Debicheck debit order essentially requires the consumer to electronically confirm a debit order mandate before any payments can be processed to their account. In practical terms, when the consumer signs an agreement and chooses to pay via debit order, if the relevant service provider uses the Debicheck system, Debicheck will necessitate that the debit order mandate be positively authenticated by the consumer via their bank, along with pertinent information such as the amount, date and recipient. The system places the consumers bank in between the service provider and the consumer. The bank, acting as an objective third party, is in a position to verify that consensus has been reached between parties as to the details of the mandate in advance of any deductions being made.
According to the Debicheck website, the authorisation process comprises a once-off confirmation of the details of the relevant debit order mandate at the start of the contract with the service provider, which will only require further confirmation if and when any of the important information is altered. This additionally means that the bank will receive a copy of the agreement which governs the Debicheck debit order from the service provider, so that the details of the agreement can be reviewed and confirmed. The bank will then store a copy of the agreement which can be referenced in the event of a dispute as to the details thereof. Debicheck allows for the bank to check debit orders on a monthly basis to ensure that the amounts to be debited comply with the agreement on record, and, if they do not, to reject those orders before they are processed to the customer’s account. Debit orders will therefore only be processed only if they are within the terms of the mandate, as confirmed by the bank on an ongoing basis. If any changes to the debit order mandate are made or discovered, the bank will require an additional affirmation of these altered details from the customer.
Importantly, Debicheck allows consumers to suspend a Debicheck debit order by notifying the bank if they are unhappy with the services provided in respect of that mandate. In such cases, the debit order will be put on hold, and deductions will not be processed to the account until the issue with the service provider is resolved.
It is vital to note that Debicheck will not apply to all debit orders, it will only apply if the service provider involved uses the Debicheck system. PASA has a long-term goal of ensuring all debit orders will be regulated under the system, however for the time being Debickeck is only applicable if the relevant service provider chooses to subscribe to it.
The Authorized Collections system is being introduced in a phased approach over two years culminating in an Implementation Date on the 31st of October 2019, after which all debit order mandates concluded must comply with the requirements of the Directive. Contravention of the Directive is an offence in terms of the National Payment System Act and can entail penalties.
SARB urges parties to contact PASA or the NPS department at SARB should they require any direction in terms of ensuring that their business practices are aligned with the Directive.
If implemented properly, Debicheck has the potential to substantially curb the number of future debit order disputes and provide peace of mind for service providers and consumers alike.