Consumers fleece providers by cancelling debit orders

Consumers con vendors out of millions by reversing debit orders to companies who provide legitimate goods and services, once they have taken delivery of the merchandise or service.

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Graham Powell of the law firm Hahn & Hahn said his firm had suffered considerable losses when it had provided legal services to clients who had then illegally reversed debit orders after the service had been rendered.

"We specialise in repairing the creditworthiness of consumers who had been blacklisted because of judgements for bad debt. It has happened numerous times that legitimate debit orders for fees that were due to us have been reversed and we then have to take legal action against those individuals to recover our losses."

Powell said it was well known within companies who dealt with debit orders that consumers were very likely to renege on debit orders - especially towards the end of the month when they realised they could not make ends meet.

"Our main problem lies in that banks simply reverse a debt order within 40 days if the client makes such a request. This is a no-questions-asked deal where banks do the reversal, without checking whether the debit order was valid."

Payments Association of South Africa (PASA) chief executive Walter Volker confirmed that illegal reversals of debit orders was a major problem and that his association was looking at ways to combat the issue.

Syndicate involvement

Fred Steffers, managing director of one of the largest payment systems companies in South Africa PS&S, said his company had suffered substantial losses because of illegitimate reversals of debt orders.

"I am convinced that organised crime plays as much of a role on the consumer side as it does in telemarketers defrauding the public with bogus debit orders. We recently uncovered a syndicate that was involved in property transactions where every debit order it had signed was revoked and we and the end user suffered considerable losses."

Steffers said the current rules and regulations were entirely one-sided in that it favoured consumers above the legitimate interests of service providers.

Using its proprietary SmartCollect system, PS&S is able to process hundreds of thousands of payment orders monthly, which was how it first identified the problem.

"We are dealing with a major problem where crooked consumers are taking advantage of a weakness in the system to defraud vendors who are acting in good faith.

"I believe it is high time that we take a long hard look at the entire payments system to plug holes both on the consumer side as well as to prevent crooked call centre agents from defrauding the public," concludes Steffers.