Insurance group Clientèle has embarked on litigation to change the rules issued by the Payments Association of South Africa (PASA) so that it can challenge debit orders reversals.
PASA’s 30-plus members include the biggest banks in South Africa. It is the only entity recognised by the South African Reserve Bank (Sarb) as a payment system management body as contemplated by the National Payment System Act.
In its 2022 annual report, Clientèle flagged debit order reversals as a challenge to the stability of the group’s premium revenue.
“Each day, South Africans are confronted by examples of high-profile people who have committed criminal offences escaping conviction, prosecution, and accountability […] This has an inevitable effect on people of all income groups who feel that if the leaders do not stick to the rules or obey the law, why should they? This results in more insurance fraud and policyholders having no compunction in disputing valid debit order collections from their bank accounts,” Clientèle’s chairman, Gavin Routledge, wrote in the group’s 2022 integrated annual report.
“This results in them being refunded automatically by their banks for insurance premiums that have come off their bank accounts, and for which they have contracted and have had cover, without their needing to contact Clientèle or any other insurer who holds a valid debit order mandate. In these circumstances, Clientèle is given no notice, nor the chance to show it has a valid debit order mandate, nor talk to the policyholder until after the funds have been removed from Clientèle’s bank account. In many, if not most, of these cases, there is no legitimate dispute by the policyholder; this is just a way of ‘managing their cash flow’,” Routledge said.
“This phenomenon has been made easier by the banks having a feature on their banking apps that allows the account-holder to dispute a debit order at the push of a button and receive an immediate refund of the debit order payment in question.”
In its report for the year to the end of June 2023, Clientèle said the previously reported higher-than-expected policyholder withdrawals continued throughout the year.
“Instability in the collections environment and in the services provided by a third-party service provider negatively impacted collection success, and consequently increased withdrawals.”
Constitution’s property clause
Clientèle wants PASA to change its rules so that it can contest a debit order reversal by providing a bank with a written debit order mandate, signed by the insured, before the reversal can take place, according to a judgment handed down by the High Court in Johannesburg on Monday.
The application was brought by Clientèle General Insurance and Clientèle Life Assurance Company.
Clientèle’s main cause of action is that the money reversed from its bank account is its property under section 25 of the Constitution, of which it may not be deprived except under a law of general application, and no law may permit arbitrary deprivation of property. It argues that PASA’s rules are a law as contemplated in section 25. Clientèle submits that this deprivation of its property is procedurally and substantively arbitrary.
As an alternative cause of action, Clientèle seeks a judicial review of PASA’s decision to make the rules. This review is sought under the Promotion of Administrative Justice Act or the principle of legality.
Sarb, member banks must be joined
PASA has opposed Clientèle’s application. It submitted, by way of preliminary objection, that the Sarb and each of PASA’s member banks should have been joined in the application.
PASA said it was not entitled to represent its member banks in legal proceedings. It also stated that a change in its rules will impact how its member banks operate and will result in significant expenditure for them.
Judge Gregory Wright said the provisions of the National Payment System Act gave the Sarb a direct, substantial, and legal interest in the outcome of the application, which may be affected prejudicially by its non-joinder.
“The purpose of the application is to change the rules. PASA does not oversee the Reserve Bank. It is the other way round,” he said in his judgment handed down on Monday.
He found that PASA’s member banks also have a direct, substantial, and legal interest in the outcome of the case.
Judge Wright ordered the postponement of Clientèle’s application, and the applicants must serve papers on the Sarb and PASA’s member banks.
He provided timeframes for the Sarb or any of the banks to deliver notices of intention to oppose, and for the submission of answering and supplementary replying affidavits.
All Financial Services Providers are required to always act only in the best interest of the client in whatever they do, with the burden of proof lying squarely on them. This is required to happen long before the signing of any debit order mandate. From a distance it now appears that the Applicant is seeking to be granted a license to act in its own best interest ahead of the interest of the client, even after the client has spoken by disputing the debit order.
There is also the relationship between the bank and the same client to consider. The client must remain reasonably empowered to instruct his own bank to reverse and remove any unauthorized debit orders that have been lodged against his bank account, failing which the bank-client relationship will no doubt be adversely affected.
It is public knowledge that the client is almost always the likeliest victim in this kind of situation. The existing strict rules were imposed simply because there was proof that the industry players and their intermediaries were abusing the system in the very first place.
WE HAVE TO ALSO TAKE INTO ACCOUNT THE FACT THAT THE PROVIDERS, FOR EXAMPLE INSURANCE COMPANIES, ARE ALSO “VICTIMS” THEY HAVE GONE TO GREAT LENGHTS TO ON-BOARD A CLIENT, HAVE SOLD AND EXPLAINED AND TAKING INTO ACCOUNT THAT TIME ON COVER HAPPEND, TO THEN NOT GET THE PREMIUM THE CLIENT AGREED TO. TIME ON COVER IS NOT ALWAYS UNDERSTOOD – SHOULD THE CLIENT HAVE HAD A LOSS IN THE PERIOD BEFORE HE STOPPED OR REVERSED THE PREMIUM COVER WOULD HAVE BEEN IN FORCE….
I agree entirely with Reuben. In fact, the banks should insist on confirmation from their account holders before even starting a new debit order. There is far too much abuse and negligence in the system. Instead of challenging the debit order reversal system, Clientele should instead be insisting that their representatives and employees ensure that potential clients need the product and can afford the premiums (and that the bank account number is correct and not someone else’s bank account number).
There are always three sides to a story! Mine, yours and the truth…
This is indeed a serious problem from an Insurer point of view. There are instances where claims were paid, but then the bank simply reverse the premiums and pay it back to the client. It is then the Insurer’s problem to recover the money from the client with no assistance from the bank. Or clients simply enquire about the debit order, then the bank sees that as a dispute and reverse the money.
Why would the bank provide you with approved scripting to follow for voice logged debit order authorities, yet when there is a dispute they don’t accept the voice logged call?
This made me smile! It is now the “norm” for corporates to take months to cancel a debit order in the so called proper fashion. I have a name at Bidvest who ignored my mails for two months. Netstar is atrocious! Look at their “Hello Peter” complaints. They are all about clients trying to cancel a debit order when a vehicle is sold.
Its to “steal” an extra few premiums from the client.
So CL wind your necks in. its what happens with mass marketing.