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When Anil contacted his medical scheme to cancel his premium because he knew he didn’t have the funds to pay for it, he discovered it was too late.
The debit order went off his account and bounced, and Standard Bank charged him a R61 penalty fee.
Anil’s story is not unique and highlights the financial pressure felt by so many households.
If you are not managing your debit orders proactively, you will pay severe penalties and there will be a negative impact on you credit record.
Depending on your bank and type of account, bounced debit order fees can be as high as R80 per transaction.
The Payment Association of SA (Pasa) said it was unable to share the exact figures with City Press, however, it confirmed that, while there had been a decline in the number of disputed debit orders (where debit orders were deducted illegally), there had been a consistent increase in the number of unpaid debit orders.
According to Pasa, “current assumptions are that the increase seen in unpaid debit orders are directly linked to consumers being strapped for cash due to not being paid or being paid less than usual as part of the current lockdown.
"When investigating customer complaints that we receive at Pasa, we have identified that most disputes that we are seeing are valid debit orders that consumers return to manage their cashflows.”
Cowyk Fox, managing executive at Absa Retail, says that, at this stage, the bank has not seen a material shift in the number of returned debit orders or debit order disputes since the Covid-19 coronavirus lockdown, however, “we do anticipate an increase in the number of unpaid debit orders as the economic reality of Covid-19 settles in.
"We would like to remind customers of the extensive payment relief programmes we have in place and that they should contact us to make arrangements before they run into difficulties with their debit orders.”
The banks and Pasa have made it very clear that individuals are expected to manage their finances and cashflow, and it is unlikely you will receive any sympathy from your bank when those penalty fees are piling up.
“It is the responsibility of consumers to engage with service providers should they not be able to honour any of these commitments.
"They must to make arrangements, such as payment holidays and debt restructuring,” says Pasa, which adds that nonpayment of debit orders will affect consumers’ credit records and they may find themselves without insurance cover if the policies lapse.
Anton de Wet, chief client officer of retail and business banking at Nedbank, says that debit orders are contractual agreements between customers and creditors.
“If a customer thinks they may be unable to meet their debit order obligations, we encourage them to contact the respective parties to make alternative arrangements.
"In the case where arrangements are not made and the debit order goes through and bounces, the bank will charge a debit order fee.”
The banks have also warned against using the reversal process to manage cashflow. Fox says banks are not directly involved in negotiating the debit order; the contract is between a customer and the third party.
Read: Debt relief is not as simple as it sounds
“It is important to note that the purpose of the debit order dispute/reversal process is to enable the reversal of unauthorised debit orders [debit orders processed without a valid agreement between a customer and the service provider].
"While we acknowledge the financial stress that has resulted from the Covid-19 pandemic, we caution against consumers using the reversal process as an alternative mechanism for cancelling debit orders with authorised service providers on the grounds of unaffordability.
"If financial circumstances have changed, and a customer no longer wants a debit order for any reason, it is imperative that they cancel it directly with the service provider.
"We firmly caution against the misuse of the debit order reversal process and strongly advise customers whose income has been affected to approach their creditors directly to make alternative arrangements.”
Fox adds that, from an industry point of view, it is within the rights of the bank to charge a returned debit order fee to the consumer, assuming an authorised or mandated debit order fails due to insufficient funds.
FNB’s Ravi Shunmugam, CEO of FNB EFT Product House, says qualifying FNB customers who are in financial difficulty as a result of Covid-19 may apply for the bank’s Covid-19 payment break that has been available since April 1.
“Our approach is to offer qualifying customers a payment break by paying instalments on their behalf for a period of three months.
"As a result, we have structured our assistance at prime interest rates to alleviate the financial burden and give customers the flexibility to repay the facility over flexible terms.
"In instances where customers are taking up this debt relief option, their unpaid debit order penalty fees on their FNB bank account will be reversed if this debit order is covered by the loan amount of the Covid-19 payment break.”
If you are worried about high bank fees, consider a different account package. Fox says Absa, like other banks, differentiates the pricing for returned debit orders by product.
“Customers who find themselves in financial distress can migrate to a savings account, where the fees for returned payments are lower than on current accounts.
"Savings account customers only pay for the transactions they use, as opposed to bundled offers where a range of transactions are included free of charge in the monthly fee,” says Fox, who adds that account numbers remain unchanged when customers migrate accounts at Absa, so there is no need to change debit order instructions or account details with their employer or third parties.
“Beyond our payment relief measures, customers who are unsure about their cashflow can opt for electronic account payments offered through our self-service channels as opposed to debit orders – commitments can still be honoured without using a debit order.”
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