Stop and debit orders made easy

Many people don’t know the difference between a stop and debit order.

Too many consumers assume that these terms are interchangeable, but understanding how they differ may have a direct impact on your financial health.

This is particularly true in South Africa, where there has been reports of widespread abuse of debit orders.

Many only realise they’ve been misled when payments are made from their account for services they don’t want or didn’t know they had signed up for.

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This is where understanding the difference between a stop order and a debit order can be helpful.

Stop orders

A stop order is an agreement between you and your bank, when you instruct the bank to make a series of future-dated repeat payments on your behalf.

You can instruct the bank to cancel the stop order at any time.

Debit orders

A debit order is an agreement between you and a third party, which authorises the third party to take funds from your account.

For example, if you take out a loan, you will be required to agree to a debit order for the repayments.

Your bank cannot cancel a debit order, because the agreement is not with the bank but with another company or individual.

“Debit orders are an effective way to make loan and other legitimate repayments,” explains Marlies Kappers, head of marketing at DirectAxis.

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“The difficulty is when people are tricked or misled into agreeing to have money taken out of their account by clicking a response to an e-mail or SMS from a third party for an additional service on an existing contract for example.”

“When they try to stop the extra payment being added to the existing debit order because they don’t want the product or service, they may struggle to get a response or even get hold of the service provider.”

Another issue is that people forget they have signed debit orders or change their mind after having signed a contract with a product or service provider.

To try and avoid paying, they withdraw all the money from their account as soon as they get paid. Marlies says this is a very bad idea.

“Not only will your bank charge penalty fees if there isn’t enough money in the account to cover your debit orders, but it could also affect your credit score, making it more difficult to borrow money or open accounts in future.”

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To try and protect consumers and legitimate product and service providers the banks are introducing a new system called DebiCheck. This will require consumers to confirm with their banks debit orders between themselves and third parties before the debit orders are set up.

Although it will add another step to transactions, it is hoped that in time the system will help to prevent some of the past issues with debit orders.