Clientèle challenges alarming increase in debit order reversals

Insurer Clientèle has taken the Payments Association of SA (Pasa) to the Johannesburg High Court to stop clients from declaring bogus disputes to reverse monthly debit orders.

The company says the current rules governing reversals of debit orders are inconsistent with its constitutional property rights, as many of these debit orders are being reversed before Clientèle has an opportunity to prove it has a valid payment mandate from the client.


Earlier this month, the high court postponed the case with an instruction to Clientèle to serve papers on the South African Reserve Bank and the major commercial banks, allowing them an opportunity to oppose the application should they so choose.

In his founding affidavit before the court, Clientèle’s head of group legal, Eben Smit, says the number of valid mandates being disputed rose from an average of 2.3% of total monthly debit orders in 2014 to 8.9% in 2020. In December 2020, the reversal ratio shot to 13.8%. 

This means between R15 million and R19 million a month is reversed out of Clientèle’s bank account. The timing of these reversals means the client enjoys a month of free cover.

“The volume of unfounded debit disputes continues to increase steadily,” says Smit. 

Clientèle is challenging the constitutionality of clearing rules that allow for debit orders to be reversed within 40 days of a dispute being declared. It has no issue with disputes declared after 40 days. 

Pasa oversees the rules under the National Payments System Act, which provides the legal framework for the national payments system. The rules are binding on Pasa’s member banks.

Two rules

There are two sets of rules at issue, one being EFT (electronic funds transfer) clearing rules, which deal with interbank payments, and Naedo (Non-Authenticated Early Debit Order Payment Instructions), where authority for payment is given by voice, electronic or written mandate.  

New rules, known as the Authenticated Collections (AC) system, were introduced in 2021, with the Reserve Bank allowing a period to migrate existing mandates to the new system.

There seems to be some uncertainty as to whether Pasa’s individual member banks are handling disputes under the old or the new system.

The Naedo rules allow four grounds of dispute by an account holder: no authority was given for the payment, the payment was incorrect, the authorisation has been cancelled, and the bank has been instructed to stop payment.

The rules require the banks to immediately refund the account holder if a written or electronic dispute statement is received from the account holder within 40 days of payment. 

The rules are similar for EFT clearing and likewise require debit orders to be refunded if disputed within 40 days of payment. If the dispute is declared after 40 days, Clientèle has 30 days to resolve the dispute by producing a written mandate from the policyholder.

No provision for repaying reversed premiums


Clientèle says the rules make no provision for it to produce a written mandate if a dispute is declared within 40 days. Nor is there any provision in the rules for repaying the reversed premium in cases where it can produce a valid mandate.

Confirmatory affidavits from other insurers confirm this is a common experience across the industry.

Smit says the majority of disputes are not genuine and points to a 2016 statement from the Banking Ombud that 90% of disputed debit orders are for “cash management” reasons.

The volume of debit disputes lodged within 40 days is significant and has been increasing over the past five years due to increased marketing by the banks around the management of debit orders, ultimately resulting in cash management by consumers,” says Smit’s affidavit. 

The surge in disputed debit orders has been facilitated by some banks providing dispute functionality on their websites. This enables consumers to dispute debit orders without presenting themselves at a branch, says Clientèle.

The new AC clearing rules no longer permit policyholders to dispute a valid mandate, which should go a long way to solving the problem.

However, most debit orders are still processed under the older rules, where disputes are easily manufactured. There are also concerns that the new rules may aggravate the situation by allowing policyholders to dispute payments, in some instances going back 365 days.

Clientèle says the “immediate reversal” rule on disputed debit orders is an arbitrary deprivation of its property. Even if the court decides it is not, it amounts to an invalid exercise of public power, as Pasa is an organ of the state.

The company wants the rules changed to allow it to prove it has a valid mandate from the policyholder before any debit orders are reversed.

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