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Direct Debit Blog

Information for companies considering using Direct Debit and Paperless Online Direct Debits as a payment option for their customers.

Direct Debit is a flexible and powerful payment method which has a proven forty year track record. One of the reasons Direct Debit remains so popular is because the general public has complete trust in it because of protection offered by the Direct Debit Guarantee. In a blog article last year, we discussed how the Direct Debit Guarantee introduces an element of risk to collections by Direct Debit, and how that risk to the collecting organisation (Service User) needs to be managed.

At the time we didn't look into the process of claiming under the Direct Debit Guarantee, and what the valid reasons for a claim are. Let's start by taking a fresh look at the Direct Debit Guarantee:

The Direct Debit Guarantee

  • This Guarantee is offered by all banks and building societies that accept instructions to pay Direct Debits.
  • If there are any changes to the amount, date or frequency of your Direct Debit Eazy Collect Services Ltd will notify you 10 working days in advance of your account being debited or as otherwise agreed. If you request Eazy Collect Services Ltd to collect a payment, confirmation of the amount and date will be given to you at the time of the request.
  • If an error is made in the payment of your Direct Debit, by Eazy Collect Services Ltd or your bank or building society, you are entitled to a full and immediate refund of the amount paid from your bank or building society.
  • If you receive a refund you are not entitled to, you must pay it back when Eazy Collect Services Ltd asks you to.
  • You can cancel a Direct Debit at any time by simply contacting your bank or building society. Written confirmation may be required. Please also notify us.

The process of making a claim is pretty simple for the consumer: the payer just needs to contact their bank or building society and ask to make a claim under the Direct Debit Guarantee. An immediate refund should be provided by the bank, and they will handle the rest. Point 1 sets out that all banks and building societies that process Direct Debit Collections are members of the scheme and offer the Guarantee.

Point 2 explains the processes relating to notification of changes of date and/or the amount of a Direct Debit. In reality, an organisation can set any number of days notice, but in the absence of any agreement to the contrary, 10 working days' notice needs to be given.

Points 2 and 3 outline the valid reasons to make a claim under the guarantee, and these can be further explained by the reason codes a bank has to provide to the Service User when making a claim. They are:

  • The amount or date of the Direct Debit differs from the advance notice letter/e-mail confirmation.
  • The advance notice letter was not received, or the amount on the advance notice is disputed.
  • The Direct Debit Instruction was cancelled by the bank, but still paid.
  • The Direct Debit Instruction was cancelled direct with the Organisation, but it was still collected.
  • There is no evidence that authority for a Direct Debit to be set up on the account was given.
  • The signature on the Direct Debit Instruction is fraudulent.
  • The payer does not recognise the Organisation claiming the Direct Debit.

It is important to note that in the event that a claim is made, but it is proven not to be in accordance with at least one of the above reasons, the payer must return the monies claimed to the Service User when asked to do so.

Point 4 simply outlines the customer's right to cancel a Direct Debit Instruction at any time.

The key thing to underline here is that the Direct Debit Guarantee is to protect the payer from mistakes where a wrong amount is taken, an amount is taken on the wrong date or advance notification of a Direct Debit was not issued. The Guarantee does not cover issues unrelated to the payment method; for example, the following situations would not give rise to a valid claim:

  • Service issues that the Payer is having with the Service User.
  • Issues where the payer has forgotten to cancel a contract in the past.
  • Contract disputes.

If a claim under the Guarantee is made under these circumstances, it is likely that the Service User will request the funds be returned and if they are further withheld, they may pursue payment through the normal debt collection channels.

The Direct Debit Guarantee is a powerful tool for payers when it comes to Direct Debit Collections, however using it to reclaim payments for reasons other than those for which it is designed may cause unintended consequences further down the line.

For further information: Contact Eazy Collect on 01242 650052.

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The new consumer watchdog for the banking sector, the Financial Conduct Authority (FCA) has reached an agreement with seven of the UK's largest banks and building societies which will undoubtedly help consumers avoid bank charges from failed direct debits.
In the unprecedented move, Barclays, The Co-operative, HSBC, Nationwide, RBS Group, Santander and National Australia Group will begin a process whereby direct debits, Standing Orders and future dated bill payments will be retried later in the day if they initially fail due to lack of funds.  Lloyd's Banking Group advised that they already operate a similar system for most payments, and are working to extend the scheme to all transactions.
The FCA have pressed for the retry-later process following the introduction of the Faster Payments system whereby payments between accounts happen in near real time.  
Historically payments into accounts occurred shortly after midnight as part of a batch process followed by direct debits and Standing Orders.  As Faster Payments can be credited to an account at any point in the day, it is possible that an expected payment into the account is applied after the automated payments out have been processed.  The introduction of the new retry process ensures that payments received later in the day are taken into account when making the decision whether or not to honour automated payments out of the account.
For a Direct Debit Originator, those that have their own Service User Number, this is great news as there should be an increased number of successful payments as payments received later in the day are accounted for in the decision whether to pay a direct debit or not.  It is, however, unclear at this point whether or not ARUDD (unpaid) reports will be supplied at a later date to Direct Debit Originators for those payments that fail a second time after being subjected to the retrying process.
The FCA and Payments Council are continuing to work in close co-operation to help put together a minimum service standards framework across all banks and building societies that offer direct debits, Standing Orders and future dated payments to consumers.

direct debit switch guarantee

The framework to move Direct Debits from one bank account to another has been around for many years as the concept of switching bank accounts is certainly not a new one. Historically, moving your current account was a little hit and miss, occasionally a direct debit wouldn't move over and you would have to contact all of the people who make payments into your current account individually to ask them to change their records.