Creditors allowed to ignore debit order dates

Debt consolidation.
Debt consolidation.
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Cape Town - It is legal for any business that collects payments by debit order to “track” their clients’ bank accounts and access bank accounts whenever they wish to collect premiums. 

Businesses such as insurance companies, cellular providers, microlenders, car financing companies, retailers and other service providers are allowed to submit orders for payments twice a day, any working day of the month, and help themselves if there is money available in the account.

The limit of these collections from an account has recently been increased to R15 000 per debit order instruction. From the beginning of March creditors can collect R30 000 per day from clients’ accounts.

The so-called Early Debit Order (EDO), Non-Authenticated Early Debit Order (NAEDO) or Authenticated Early Debit Order (AEDO) systems are available to all companies that use debit orders to collect premiums or payments.

In essence, debit orders can be submitted twice a day for periods of 32 consecutive days and they will be paid whenever there is enough money in the account.

Neither the company submitting the debit order nor the banks seem to be under any obligation to warn their clients that debit orders will be paid earlier than usual, or on a different date to the one the client agreed to.

While payment is due to these companies in terms of an agreement with their clients, they ignore the arrangement with their clients that the debit orders will be paid at a specific date.

When using any of the early debit order processes, debit orders can be submitted a few days early – say a week ahead of payday, instead of a day after your salary gets paid into your account.

Companies which administer debit orders, such as Direct Debit, say the aim of the process is to level the electronic debit order collection playing field by creating an equal opportunity for creditors to collect funds from their debtors.

Debit order instructions are submitted in a random manner before the standard debit order date to “ensure that each creditor has an equal chance of successful collection”.

Banks who responded to Fin24’s queries say that the practice is legal and ethical. They all say basically the same thing: all collections are done according to the clearing rules for electronic fund transfers and early debit order processes as regulated by the Payments Association of SA (PASA).

The only members of this regulated body are the commercial banks operating in SA and the Reserve Bank. Effectively, the banking industry wrote its own rules.

Banks say that tracking of accounts using either NAEDO or AEDO processes is done only against approved customer mandates, meaning that clients did sign a debit order with a company.

Banks say that tracking and early debit orders are used to ensure that service providers get their money. It is used to prevent people purchasing goods and services and then stop paying for them halfway through their contract.

They also believe it is an ethical practice to allow third parties – or other divisions within the bank, such as a vehicle financer or home loans – to access money in clients’ accounts, provided the business assures the bank that they do have a signed mandate from their customer.

They just massage the date of payment a bit to suit themselves.

 - Fin24
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