Money Matters: Managing Your Debit Order

With the rising cost of living in a troubling economy, South Africans are cash-strapped. It hardly comes as a surprise that consumers try all kinds of strategies and measures to survive, especially after the festive season. One such a trick is withdrawing all money from a bank account before debit orders hit. Unfortunately, few consumers know how this practice can adversely affect them.

According to Adv. Jackie Nagtegaal, Managing Director at LAW FOR ALL, bounced debit orders can become a costly affair. “In more cases than none, consumers end up paying way more than what’s necessary. Not to mention, bounced debit orders are recorded against a consumer’ credit profile information. If it occurs often, it can affect their chances of getting credit in the future”.

Penalty fees of major South African banks

LAW FOR ALL did some investigating and have compared the penalty fees charged by major banks in South Africa for bounced debit orders. “The question of whether these fees are reasonable was explored by the Competition Commission several years ago, and they made some recommendations, but no regulation has seen the light of day,” clarifies Nagtegaal.

What does this mean for you the consumer?

Let’s say Consumer A has a debit order of R100 per month for Funeral Cover, they bank with Absa and withdraw their entire salary before the agreed debit order is deducted from their bank account. The bank will deduct R50 from the account in the form of a bounced debit fee AND the Funeral Cover will deduct the next month again, which means the insurance company will probably make a double deduction (R200) to recover the missed month. This means that the consumer will end up paying R250 in one month, or costs will start adding up.

When a consumer doesn’t have enough money in their account to cover debit orders, the bank returns the debit order to their creditor marked “not provided for”. Not only will the bank charge for this but the creditor will re-submit the debit order the following month. Of course, this is where things get expensive:  consumers will have to pay arrears on top of the usual instalment and the penalty from the bank.

It’s also important to bear in mind that when it comes to insurance if a consumer withdraws their money before the debit order is deducted, they may lose their insurance cover, even though there was no intention to cancel it. This could have a further financial implication if something happens during that month. Especially in light of the festive season, with more accidents on the road, increase in debt, assaults etc.

Consumers can also be ‘tracked’ for money

If a debit order is processed and there are insufficient funds in a consumer’s account, the company can try and debit the account again when funds become available. This is commonly referred to as ‘tracking.’

Remember, if a consumer is deemed a bad payer, it affects their future of credit and policy cover. The consumer will also be flagged as a ‘bad payer’ and may become subject to NAEDO (Non-Authenticated Early Debit Order) deductions. NAEDO is a system that takes tracking further by monitoring bank accounts and deducting money as soon as it comes in. Often, these institutions work with various sources to get data on payment dates.

Consumers are not alone

According to the Payments Association of SA (PASA), 33.5 million “normal” debit orders are processed each month, and a further 14.7 million so-called “early” debit orders. 10% of Debit Orders bounce every month for various reasons, but mostly due to insufficient funds. It is estimated that banks make approximately R6 – 10 billion per year from this.

Plan your finances and don’t let your debit orders bounce

In short, consumers either have to plan carefully during the month or assess whether or not it is best to cancel some debit orders until they have found their feet again.

Nagtegaal warns: “If you feel as though you cannot afford to pay your instalment, it’s best to cancel the policies or agreements you have in place to avoid penalties. But think and plan carefully, you may want to stay away from cancelling insurance policies as they cover you when you need it the most. It’s a good idea to look at more affordable offerings. Most companies are very helpful if you call in asking for financial assistance and are likely to suggest more affordable options to keep you sufficiently covered”.

For a comprehensive look at that ins and outs of LAW FOR ALL’s legal insurance cover benefits, take a look at Why Legal Cover is Essential. 

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