/ 11 February 2008

Unsavoury debit order practices

Service providers, it appears, are taking management of our finances into their own hands by assuming that we are unable to make provisions for regular debit orders.

This month two debit orders ran off our household account early. I noticed because they went off before pay day and as a result bounced. This unilateral decision went against a written agreement only to run the debit orders on the 27th of the month.

This incident follows Nedbank’s run-in with the Banking Ombudsman in December for running debit orders on personal loans a full 10 days early.

According to Nedbank they have found that people get paid earlier in December and by the time the debit order is effected there is no money in the account. Apparently the practice of early debit orders in December is not restricted to bank loans, with other service providers such as Vodacom taking a similar approach.

According to the Banking Ombudsman, this is patronising towards customers. Legally, service providers are not allowed to move debit order dates unless this is specified in the contract.

Nedbank tried to get around this by sending an SMS to all affected customers informing them that the debit order would run early and promising to contact them if there was a problem. Unfortunately for Nedbank and its customers a power failure shut down the call centre, so customers, no doubt all those who were not being paid by the 10th of the month, were unable to get through. Nedbank ran the debit orders early anyway and created an uproar.

The bank says it has learnt some lessons and refunded those people who incurred costs because the debit orders bouncing. Nedbank will be meeting with the Banking Ombudsman to clarify the issue.

According to the Banking Ombudsman, a creditor may not run a debit order earlier than the specified date. If they do and it results in a bounced payment, the service provider responsible is liable to repay the customer any penalties. A creditor may also not run a debit order on a Friday if the debit order date falls on a weekend and has to wait until the Monday.

With consumers facing an increasing credit squeeze, it will become tempting for creditors to move debit orders earlier to ensure they are at the front of the queue. But this is illegal and should be reported to the Banking Ombudsman.

When signing a debit order, read the fine print in case a clause is tucked away allowing an open-ended debit order arrangement. With the new Credit Act, it has become increasingly important for consumers to manage their finances effectively, and they should select a specific date when they know funds will be available.

If service providers do not adhere to this, strong action should be taken to rectify your record.