What is the Law on Debit Orders?

A big part of adult life involves making payments. Lots and lots of payments. Whether it’s loans, subscriptions, or premiums, we often have to make many unavoidable instalments each month. This process seems simple at first but, as you incur more and more costs, it becomes difficult to keep track of all those different expenses. Luckily though, there is a banking tool that can streamline these payment procedures and make your life a whole lot easier. Instead of trying to juggle all of your monthly fees, you can just make your payments using the debit order system. It sounds great in theory, but it also raises quite a few important questions, for instance – How do debit orders really work? Can they be reversed? And what does the law say about them? What is the Law on Debit Orders?

When it comes to debit orders and any disputes that arise from them, banks in South Africa are normally beholden to four main bodies of regulation, namely – 

What is the Law on Debit Orders?
What is the Law on Debit Orders?

On the topic of debit orders specifically, SARB has also implemented the new DebiCheck payment system which enables users to verify details relating to their debit orders. This system is designed to protect South Africans from fraud and abuse.  

How do Debit Orders Work in South Africa?

Debit Orders are agreements that give third party beneficiaries (the person you want to pay) the ability to take the money that they are owed from your bank account when it is due, without you having to constantly mandate the transaction. 

That may still be a bit confusing, so let’s look at an example to simplify things – 

Debit Order Example
You sign up for a local gym. The gym offers a debit order payment plan for your convenience. Instead of remembering to pay your gym membership fee every month, the gym will simply take the money from your bank account.
The gym then seeks permission from the bank to remove the funds. After processing the agreement, your bank allows the gym to take the established amount from your bank account on a predetermined day of every month. 
You no longer have to remember to pay your membership fee as the amount is automatically removed from your account each month. 

As you can see, debit orders are the main tools of convenience that help to simplify the payment process. That said, this information may have left you wondering what happens when there’s a dispute with the action.

How do you Dispute/Reverse Debit Orders?

Debit orders can normally be disputed in two ways. If you have a specific dispute with the service provider (ie, if the gym is taking too much money or charging you repeatedly in the same month), you can approach them directly and resolve the issue. Remember, the agreement is between you and the beneficiary, which means that the bank doesn’t have the authority to cancel the contract. 

If the debit order is a result of fraud/abuse, you can contact your bank and inform them of the issue. Some banks allow you to do this over their banking apps while others require you to contact them over the phone or in-person at your nearest branch. 

Usually, the bank will allow you to reverse the payment and may allow you to put a stop to any further transactions

What is the Law on Debit Orders?
What is the Law on Debit Orders?

What Happens When You Dispute a Debit Order?

Disputing a debit order at the bank will have a different outcome depending on whether or not the dispute in question is considered to be valid. Although the specific results may vary between banks, generally, the process will look something like this – 

  • You dispute an invalid/fraudulent/unauthorised debit order with your bank. 
  • Your bank will normally reverse the transaction and put a stop to any further charges. 

On the other hand, the process may end up like this – 

If your debit order issues are being caused by a disagreement with the service provider and not by fraud or abuse, try to sort it out with them rather than using the bank’s dispute system as a go-between. 

How Long Do You Have to Dispute a Debit Order?

You can dispute a debit order at any time, however, the process for these disputes and reversals will differ once a period of 40 calendar days has elapsed. 

If you dispute an order within 40 days of it occurring, the bank will normally reverse the transaction immediately, or within a similarly short time period of perhaps 1 or 2 days

Many banks allow customers to complete these reversals via online banking tools or through their banking apps, so long as the amount of money in question does not exceed a certain limit. 

On the other hand, if the dispute occurs after 40 days have passed, the bank will first need to check the details and status of the agreement/mandate that exists between you and the beneficiary. If the beneficiary is unable to provide proof of this mandate within 30 days, a reversal should successfully take place.

When disputes occur after the 40 day period, customers will usually have to contact their bank over the telephone or in-person at a local branch to request a reversal. 

What is Debit Order Abuse?

Debit order abuse (DOA) usually describes debit orders which are collected without a valid agreement existing between the account holder and the beneficiary. 

Most of the time then, the term DOA is used to refer to fraudulent activity conducted by supposed beneficiaries (ie, scammers), however, it can also refer to abuse conducted by the account holders themselves. Simply reversing a valid debit order because you don’t have the money to pay for it may be considered to be a type of debit order abuse. 

Is it illegal to Reverse a Debit Order?

It is illegal to reverse a valid debit order. In other words, you may be in breach of your contract if you reverse a debit order which you have agreed to pay and which you have no legitimate dispute with. 

Debit orders should only be reversed when there is a valid reason to do so such as when you did not agree to them in the first place.

What Debit Orders Cannot Be Reversed?

During the aforementioned 30 day period, if the beneficiary is able to provide proof of the agreement/mandate to the bank following a dispute, the bank will not be able to reverse the debit order. 

In other words, when you have a valid debit order established with a beneficiary, the bank is not able to interfere and the dispute must be settled between you and the beneficiary directly. 

What is the Law on Debit Orders?

In Conclusion – What are Debit Orders and How do you Dispute Them?

Debit orders are convenient banking arrangements made between individuals and beneficiaries. Put simply, instead of remembering to pay certain loans or service providers each month, individuals can just create a debit order which will allow the beneficiaries to remove the predetermined funds from the individual’s bank account each month without having to constantly seek permission and access. 

This agreement exists between the individual and the beneficiary and, as such, the bank is not able to terminate orders without permission from both sides. 

Various documents and institutions oversee and regulate the debit order process as well as the conduct standards for banks and their customers. These include – 

  • The Code of Banking Practice (COBP)
  • The Payment Association of South Africa (PASA)
  • Ombudsman for Banking Services (OBS)
  • South African Reserve Bank (SARB)

If you have a dispute over a specific aspect of a valid debit order (for instance, if the amount in question increases), you should try to settle the issue with the beneficiary in question rather than going through the bank as the bank is not included in the agreement/contract. 

On the other hand, when dealing with invalid debit orders (fraudsters/scammers, etc), you can contact your bank to reverse any previous transactions and put a stop to further ones. 

The bank’s debit order reversal facilities should only be used when dealing with invalid debit orders. Reversing valid debit orders is illegal and can put you in breach of your contract with the beneficiary. 

Illegal reversals can also negatively impact your credit score and ability to find other credit applications.  

Valid disputes that occur within 40 days of the transaction can usually be carried out online or via the banking app. Most banks will then reverse the transaction immediately or within a very short period of time. 

If more than 40 days have passed since the transaction took place, disputes will usually require the individual to call the bank over the phone or approach their local branch in person. In these instances, the bank will investigate the issue and give the beneficiary 30 days to provide proof of their mandate. If the beneficiary cannot provide proof, the transaction will be reversed, but if they can provide proof, the bank will be unable to interfere with the process and the individual will have to sort the problem out with the beneficiary directly. 

Disclaimer LAW101: All of our posts are for research purposes only. Law 101 aims to assist its readers with useful information on the laws of our country that can guide you to make decisions in line with the South African Governmental Laws currently in place. Although our posts cite the constitution in many instances, they are intended to assist readers who are looking to expand their knowledge of the law. Should you require specific legal advice we advise you to get in touch with a qualified legal expert.

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