In a legal dispute that may reshape how debit order reversals are governed in SA, insurance group Clientele wants to force banks to give it an opportunity to provide proof of a valid mandate before reversing debit orders.
This is as the JSE-listed insurer battles to contain a rise in debit order reversals from its client base.
The financial services group has dragged the Payments Association of SA (Pasa) to court seeking an order compelling banks not to unilaterally reverse lawful debit orders.
Pasa, the payment system management body recognised by the central bank, has more than 20 members, including SA’s biggest banks; Absa, Nedbank, Capitec, Standard Bank, FNB and Investec.
The entity plays a key role in SA’s payments industry, managing its members’ activities in the national payment system.
Section 25
Clientele, valued at R3.4bn on the JSE, will argue in the high court in Johannesburg that once money is lawfully debited from its clients, section 25 of the constitution is a shield and banks cannot reverse the money at the behest of clients without seeking its audience first.
Section 25 of the country’s supreme law is often associated with the polarising expropriation without compensation debate.
This section, Clientele will argue when the matter is heard in court, protects it from banks arbitrarily depriving it of its property — in this instance, cash.
Pasa on Monday managed to delay the hearing of the matter, arguing that the failure by Clientele to join the banks and the SA Reserve Bank in the matter was ill advised, as it had no authority to speak on their behalf.
The country’s banks and the central bank have now been given a chance by the court to choose whether they wish to oppose the relief sought by Clientele or not, before the merits of the matter can be argued.
In its six months to end-December results released in February, Clientele flagged “challenges within the collections environment, together with pressure on disposable income [of] our customers [that] continues to negatively impact withdrawals and remains one of management’s key focus areas”.
The company’s main operating segments are long-term and short-term insurance. The vast majority of policies written are in respect of individuals.
The group also provides legal cover, which covers civil, criminal and labour-related matters.
Recent results from consumer-facing companies have laid bare the economic hardships facing consumers on the back of debilitating interest rates, now at a 14-year high, which are compounded by the elevated cost of living, with many consumers falling behind on loan, bond, vehicle and credit card repayments.
SA’s largest short-term insurer, Santam, in its results for the six months to end-June released last week, said its MiWay unit experienced an uptick in rejected debit orders, and lower sales volumes and conversions in the period.
This, too, is related to consumers facing increased pressures to stretch the rand and put bread on the table.
SA banks are said to process more than 50-million debit orders every month to the value of almost R100bn.
Authentication challenges
Pasa CEO Ghita Erling said in the organisation’s 2022 annual report that it is working to resolve the authentication challenges that have hindered the full adoption of DebiCheck, SA’s “gold standard” for debit order collections.
“I am pleased to report that we further strengthened the existing debit order ecosystem by establishing a debit order rule framework. This framework provides a consistent and balanced approach to managing the risks associated with disputes and suspension across EFT debits ... and DebiCheck.”
DebiCheck was launched in SA in 2017. The system is a type of debit order that needs confirmation from the customer before a debit order is granted.
It was mainly launched to reduce the number of fraudulent debit orders, which had become prevalent in SA.
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