Bank charges - penalty fees

[Dave A]

Here is an interesting insight into the debit order system and associated requirements.

These are the rules banks need to adhere to, according to the Ombudsman for Banking Services:

• Customers can give their banks written stop-payment instructions to prevent debit orders for specific amounts. When a debit order is returned "payment stopped" on the instruction of a customer, the user (service provider) may not process further debits under the system.
  
• An instruction to cancel a debit order only remains on the bank's system for a limited period of about three to six months. After this period a user may again attempt to debit the account and it will be processed. It is important that clients check their statements regularly for fraudulent debits.
  
• A customer can instruct his or her bank to reverse a disputed debit order. If the disputed debit order is reported within 40 days of it appearing on the account, the bank will immediately reverse it.
  
• If a debit order is unpaid on two consecutive occasions for lack of funds, the user must remove it from the system.
  
• If a debit order is unpaid for lack of funds, the user may resubmit the item but may not adjust the value of the transaction.
  
• If there are not enough funds in the customer's account to meet a debit order, the company can re-submit the debit order the next month, but it may not adjust the value of subsequent transactions to recover arrears.
  
• Users must produce auditor's certificates at annual intervals confirming to the banks the existence of their authority to debit the customers' bank accounts.

According to the ombudsman, the banks have introduced a process to identify those companies who have not conformed to the rules of the debit order system. These companies would then be disqualified from further use of this facility.
from M&G report here

[Frankincense]

They have always had what they call "The Paternal Approach"....as that of a Parent....and it resonates in thier declarations made concerning "client bahaviour" in the report mentioned above.

Maybe the real headline is that there is no evidence to suggest contrary that Bankers internationally are inherently corrupted.

"banks make more money from rejected debit orders than those that are paid"

Imagine: I derive most of my income from your misfortunes and claim it will help you in the long run? As if I am your parent and know better.

They will always prey off the weakness of humanity and will continue to prey off us as they grow in power to fullfill the Word's prophecies concerning "buying and selling without a mark." It's not in it's interest to become moral nor it's destiny.


" higher fees are needed to encourage customers to meet their obligations"

Clients obligations are financially related anyway (fees), so what we see is not relief, nor paternal love and guidence, but the consistency of "More debt for your debt". How can it charge you more for not being able to pay in the first place?

The answer is simple: Once I as a client have been sentenced, as have my accounts etc and am on the grid, I will always owe and pay as a sentenced flesh carrier.

A surprise or revelation awaits those who realize what's happening to society at large...this is not about Us(The retail client)!

[Dave A]

An unpaid debit order costs the bank on average R3.50, and the charge accounts for about 8% of non-interest income.

An illegal version of the Banking Inquiry Panel report, which was posted on website wikileaks, revealed that penalty fees generated on average 8% of the banks' non-interest revenue.

The issue of penalty fees, as well as debit order practices, was a contentious issue during the bank inquiry hearings.

Lower-income earners with low levels of financial literacy are particularly vulnerable to unscrupulous debit order practices.

The Bank Inquiry Panel recommended that banks make it easier to cancel debit orders and that penalty fees be reduced to R5. In fact the report stated that if the banks do not come into line, the issue of maximum penalty fees should be imposed by regulation.
full story from M&G here

It is an interesting story which delves into the issue of penalty charges on unmet debit orders quite well.

Whilst it is easy to get hot under the collar about just how much money banks are making in this penalty fee, it is the part about responsibility that I find particularly interesting.

This raises questions about why the banks do not do more to protect their customers.

One argument is that there is no negative incentive for banks to clean up the debit order system. As the inquiry showed, banks make more money from rejected debit orders than those that are paid. The average cost to the bank of a returned debit order is about R3,50.

Banks argue that higher fees are needed to encourage customers to meet their obligations and that without high penalty fees the debit order system would be undermined. Yet Capitec Bank, which deals primarily with low-end income earners, is able to charge R3,50 for a returned debit order with no systemic risk.

Absa has not experienced an increase in non-payment since reducing penalty fees. So who exactly are the banks trying to protect ** their retail client or corporate client?

The panel observed that banks see themselves in the "role of protectors of the collecting customer by penalising their own account-holding customers".

Somewhere along the line the banks have forgotten who their clients are. In an attempt to protect their corporate base, banks talk about protecting contracts and the rights of the provider. Comments that penalty fees ensure customers do not default on their contracts and that the bank cannot cancel a debit order as it interferes with the provider's contract point to the fact that it is the corporate client, not the retail client, that matters.

As the report reminds us, it is up to the service provider to ensure that the person who signs the contract is creditworthy, not the customer's bank.

The increase in revenue from penalty fees would suggest that service providers are not carrying out their job of vetting their customers. And why should they? There is no disincentive for the provider to sign up a non-payer on the system as it is the customer, not the provider, who pays the penalties.

Volker believes that the banks need to work more closely to root out this behaviour. He argues that if a particular service provider results in complaints, the provider should be blacklisted and any bank that continues to provide a platform to the company should be fined.

Or maybe the real headline is that there is no evidence to suggest that a high penalty fee does in fact reduce unmet debit orders!