Many people are cash strapped

Mounting financial burdens on consumers has led to a 54% increase in disputed debit order complaints over the past year, says the Ombudsman for Banking Services Clive Pillay.

“It is a worrying sign that so many people are cash-strapped and that so many people are over-indebted,” said Pillay.

According to data from the Payments Association of South Africa (Pasa), around 31 million debit orders amounting to R72 billion are processed per month, of which 1.2 million are unpaid and a further 170 000 are disputed.

There are two categories of debit orders: EFT debit orders, which are processed on the date chosen by consumers and mostly after normal business hours, and early debit orders, which are collected shortly after midnight and immediately after the processing of EFT credit payments such as salary payments, explained Pillay.

He said several complaints lodged with his office centre around non-authenticated early debit orders, whereby transactions are processed prior to the agreed date. Pasa data show that almost 14 million non-authenticated early debt orders worth R9 billion are processed each month, 4 million of which are unsuccessful, with 600 000 disputed.

An estimated 90% of disputed debit orders are for so-called ‘cash management’ reasons, Pillay said, citing Pasa data. “The Payments Association investigates every disputed debit order and often they are legitimate disputes, but there are also ones that are not legitimately stopped. They are done simply because you have to pay five people but you only have money to pay four, so you stop one debit order and then double it up the following month,” he said.

Dishonouring debit order commitments for cash management reasons is considered unethical or fraudulent. Failure to pay debit orders on time or within the 15-day grace period, can result in penalty charges and even the cancellation of contracts. The cancellation of an insurance policy would result in no coverage in the event or a loss and no refunds of premiums can be claimed.

Consumers struggling to meet their financial commitments should approach their banks for assistance, advised Pillay.

The Code of Banking Practice commits banks to assist clients in dealing with financial difficulties. As such, banks are obliged to review their clients’ financial situation with the said clients and develop a plan to address any financial difficulties. Such a plan may include a so-called ‘payment holiday’, whereby certain payments are suspended for a three-month period, a temporary reduction in instalments or halting of interest payments, he said.

He added that such informal assistance would not lead to clients being blacklisted or being listed as a bad risk with various credit bureaus, which will have a negative impact on the client’s ability to access credit in the future.

“Access to finance is the lifeblood of industry and the individual. Without access to finance, you will be reduced to a cash existence and, if reduced to a cash existence, you will probably have a low quality of life,” he said.