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Crooked consumers con vendors out of millions

Aug 01 2014 20:45
Fin24

Johannesburg - There is a major problem of crooked consumers taking advantage of a weakness in the debit order system to defraud vendors acting in good faith, according to Fred Steffers, managing director of payment systems company PS&S.

“I believe it is high time we take a long hard look at the entire payments system to plug holes on the consumer side, as well as to prevent crooked call centre agents from defrauding the public,” said Steffers.

His company has suffered substantial losses, because of illegitimate reversals of debit orders.

Considerable losses

“I am convinced that organised crime plays as much of a role on the consumer side as it does in telemarketers defrauding the public with bogus debit orders," said Steffers.

“We recently uncovered a syndicate involved in property transactions where every single debit order they had signed was revoked and both the end user and ourselves suffered considerable losses.”

In his view the current rules and regulations are entirely one-sided in that it favoured consumers above the legitimate interests of service providers.

“The banks make no attempt whatsoever to verify whether a debit order had been legitimately entered into. Within the first 40 days all it takes to reverse a debit order is a single call to the bank and hey presto, the money is paid back into the consumer’s account," he said.

Banking details

Graham Powell of the law firm Hahn & Hahn also regards the illegal reversal of debit orders is a big problem that must be tackled.

Payments Association of South Africa (Pasa) chief executive Walter Volker confirmed that these illegal reversals of debit orders cause big problems and the association is looking at ways to combat the issue.

Recently Pasa blacklisted more than 100 telemarketing companies for illegally charging consumers for goods and services not provided or for outright fraudulent transactions where banking details were obtained illegally.

"While criminal syndicates played a major role in fleecing unsuspecting consumers by means of bogus debit orders, consumers are equally guilty in conning companies, who provided legitimate goods and services, by reversing debit orders once they had taken delivery of the merchandise or service," said Powell.

His firm suffered considerable losses after they provided legal services to clients, who then illegally reversed debit orders after the services had been rendered.

Without checking

“We specialise in repairing the credit-worthiness of consumers who have been blacklisted, because of judgements for bad debt," said Powell.

"It has happened numerous times that legitimate debit orders for fees that were due to us had been reversed and we then had to take legal action against those individuals to recover our losses.”

Powell said it was a well-known fact among companies dealing with debit orders that consumers were highly likely to renege on debit orders.

This happens especially towards the end of the month when they realise they could not make ends meet.

"Our main problem is that banks simply reverse a debit order within 40 days if the client makes such a request," he said.

“This is a no-questions-asked deal where banks do the reversal without checking whether the debit order was valid."

- Fin24

johannesburg  |  banking  |  financial services  |  money  |  consumers  |  fraud
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