Refund of Interest charge - who pays?

DaveO

Hi,

Egg recently tried to take a direct debit from my current account which failed. They have stated the reason it failed is because the card had been dormant for over 13 months so my bank would have cancelled the direct debit.

Sure enough my bank have said the reason the direct debit was rejected was due to no valid direct debit instruction being in place for that particular credit card.

Note it did not fail due to insufficient funds in the account.

The rejection of the direct debit made the eventual payment late so I was as a result of this charged £27.59 in interest which as far as far as I am concerned I should not have to pay. It was not my fault the direct debt was cancelled and nor was I notified it had been cancelled by my bank. My Egg account was showing a valid direct debit instruction in place on the day they attempted to debit the account.

I am assuming I should be protected by the direct debit guarantee scheme here and I should not lose out as a result of this.

If so, the question is who should refund the interest charge, my bank or Egg?

Egg have already refused to do so stating it was my bank who cancelled the direct debit so they are the ones I need to contact for a refund. I have done so and am awaiting their response.

However in anticipation of my bank rejecting my request for a refund off them can anyone tell me which of the two institutions is liable under the direct debit guarantee scheme to refund me the interest charge?

Thanks,

Dave

dzug1

The direct debit guarantee is given by the bank - who then sort it out with the other party if need be.

I'm not sure the guarantee is relevant in these circumstances though:

If an error is made by the organisation or your bank or building society, you are guaranteed a full and immediate refund from your branch of the amount paid

I'm not sure that an error has been made.

DaveO

I have done some research and found this on the BACS web site about direct debits and the 13 month dormancy period.

"After the dormancy period has passed, the bank will remove details of the Instruction from their system. Before claiming further Direct Debit payments the organisation must obtain a new Direct Debit Instruction or your authority to continue collecting. If this is not done your Direct Debit payment may be returned by your bank."

This clearly states the (debiting) organisation must obtain a new instruction BEFORE claiming further payments.

Egg didn't. They tried to debit on an existing instruction that they have now told me would have been expired automatically by my bank anyway.

So therefore it appears to me Egg did not follow the correct procedure in dealing with a direct debit they know to have been dormant.

I have put this to them and await their response.

YorkshireBoy

DaveO wrote: »

So therefore it appears to me Egg did not follow the correct procedure in dealing with a direct debit they know to have been dormant.

There's no set rule. Some banks adopt the 13 months/400 days approach, and others don't. I noticed recently that I have DD's on one of my current accounts that are still active, yet haven't been claimed for far longer than 13 months/400 days.

In order for Egg to KNOW that your DDI had been cancelled by your bank then your bank would have to have informed them.

I can't remember if the bank is required (under the rules) to let them know, but I recently cancelled an M&S card DDI with my bank, and despite the account being closed many months earlier M&S still wrote to me to let me know the DDI was cancelled.

So, first and foremost you have to ask your bank if they told Egg the DDI was cancelled, and then if they did tell them you have to ask Egg why they didn't inform you...if indeed they have a responsibility to do so? Do they (under the rules), or is it your business to know?


EDIT: Just a thought...even if Egg do have a responsibility to inform you, what if the DDI had only just lapsed? ie, there may not have been time to inform you. Whose fault would it have been then?

DaveO

YorkshireBoy wrote: »

There's no set rule. Some banks adopt the 13 months/400 days approach, and others don't. I noticed recently that I have DD's on one of my current accounts that are still active, yet haven't been claimed for far longer than 13 months/400 days.

The BACS web site is unambiguous: "After the dormancy period has passed, the bank will remove details of the Instruction from their system. "

Also Egg have told me my bank will have cancelled the direct debit because it was dormant. Whether they have assumed it was removed due to being dormant or were told it by the bank I have no idea. Either way it is Egg who are telling me this not the bank so I find it odd they clearly claim to know the reason yet would still try a debit without first applying for a new instruction!

In order for Egg to KNOW that your DDI had been cancelled by your bank then your bank would have to have informed them.

Indeed. However I suspect given they went ahead and tried to debit anyway they had not been informed or if they had been, didn't act accordingly.

I can't remember if the bank is required (under the rules) to let them know, but I recently cancelled an M&S card DDI with my bank, and despite the account being closed many months earlier M&S still wrote to me to let me know the DDI was cancelled.

So, first and foremost you have to ask your bank if they told Egg the DDI was cancelled, and then if they did tell them you have to ask Egg why they didn't inform you...if indeed they have a responsibility to do so? Do they (under the rules), or is it your business to know?

Well I didn't even know the dormant period existed until today and as far as I am aware this is not highlighted on the direct debit forms you fill in.

Between them the actions of both my bank and Egg have resulted in a charge to me which I do not think is right or fair.

EDIT: Just a thought...even if Egg do have a responsibility to inform you, what if the DDI had only just lapsed? ie, there may not have been time to inform you. Whose fault would it have been then?

Why would I care? As I said the actions of the two institutions has combined to result in an interest charge to me.

Given I was not informed the direct debit had lapsed or that there was such a thing as a dormancy period I can't see why I should be worse off here regardless of timing.

There should be a mechanism in place to inform customers and the debiting institution if a direct debit is going to lapse at least a month before it actually lapses so the timing issue you mention would be taken care of anyway.

It does not seem acceptable to me for the only mechanism to flag up a lapsed direct debit being one where a direct debit must be attempted and subsequently rejected.

That will result in charges to the customer most of the time I suspect so this procedure if common practice elsewhere would I hope be of interest to the regulator as it seems an excuse to levy charges.

Does anyone know when the idea of this dormancy period was introduced?

Dave

ldn-100

Egg should have structures in place to deal with this. Don't they insist on you having a direct debit set up on the account at all times? Also, they have the Egg Money product which they hope you will use in such a way that direct debits will not necessarily be on a monthly basis and this kind of situation is not only possible, but encouraged (i.e. hoping that you will have a credit balance).

I would write to them rather than deal with the people on the phone. It will be easier for you to make the detail your case against them clear. The telephone staff are friendly enough but unlikely to grasp your argument enough to feel you are owed anything.

DaveO

ldn-100 wrote: »

Egg should have structures in place to deal with this. Don't they insist on you having a direct debit set up on the account at all times?

Yes they do and that is part of the confusion as when I looked at my account the direct debit instruction could be seen there. So it looked to me from the credit card side of this the direct debit instruction never lapsed.

Put it this way there has never been a time when there was not,a direct debit instruction sitting there to view when you click the option to do so (which you can with an Egg credit card account).

The situation ended up with on the Egg side a direct debit mandate showing for me to view that said it was current but on the banks side no corresponding direct debit instruction in place which is clearly not right as both institutions should agree on this I would have thought.

I would write to them rather than deal with the people on the phone. It will be easier for you to make the detail your case against them clear. The telephone staff are friendly enough but unlikely to grasp your argument enough to feel you are owed anything.

I wrote to them initially to query why they had not taken the direct debit (I noticed this before the interest charge was levied) and have used the on-line messaging system to put things across as clearly as I can. It seems they ignore paper communications in favour of the on-line route.

Dave

DifferentFromTheNorm

It's quite a common thing to happen when people don't use their card for a while.

For some reason when a bank cancels the DD because of it being dormant they don't notify the company. In all other cases Egg (and other companies I've worked for) get told it's been cancelled, such as 'Cancelled by bank' etc, but never if it's due to being dormant.

That's why Egg called for the Direct Debit, because their system still showed it as active.

When I worked at Egg they usually just refunded the interest charge. Maybe their policies have changed though.

Also, if a balance transfer was done over the phone it was expected that the CSA processing the BT should recognise that the DD hasn't been used for 12 months (or longer) and recommend that the customer contacts the bank to make sure it's active.

Unfortunately not everyone is aware of the issue.

What used to happen (and I guess still does) was when the DD came back as failed with the reason 'No Instruction' they would set up a new one then call for it again unless a payment credited in the mean time.

The process of calling for the DD would start 10 working days after it failed, which means that by the time it debited the account it would be 14-15 working days after it first failed (only if a payment didn't credit within that first 10 working days).

Hopefully that makes sense.

You have almost a zero chance of being refunded by your bank so it's better to get in touch with Egg again, I would say to phone them in this particular instance.

It may get complicated though...

Some banks (for whatever reason) won't allow a second Direct Debit to be set up if it has the same reference as one that's previously been cancelled.

Egg use the card number as the reference. If this happens they have no other way to resolve it other than to report the card as 'lost' so that it generates a new card number.

There's one more thing you can do though and that is contact your bank and ask them to reinstate the DD. This may also avoid any problems with a second new DD being rejected.

Dormant DDs don't normally show up on online banking etc but they still show on the banks internal systems. When I worked at a bank you could see old DDs that had been cancelled years ago and others that had the 'Dormant' status next to them.

When they reinstate a DD it'll automatically inform Egg and the DD will all be set up to use again. But... when Egg receive a notification of reinstatement it automatically sets up the DD to the minimum amount. So after you've reinstated it wait a few days before changing the payment amount to whatever you want (either online or over the phone).

DaveO

DifferentFromTheNorm wrote: »

It's quite a common thing to happen when people don't use their card for a while.

For some reason when a bank cancels the DD because of it being dormant they don't notify the company. In all other cases Egg (and other companies I've worked for) get told it's been cancelled, such as 'Cancelled by bank' etc, but never if it's due to being dormant.

That's why Egg called for the Direct Debit, because their system still showed it as active.

When I worked at Egg they usually just refunded the interest charge. Maybe their policies have changed though.

That would seem to be the case. However Egg have claimed if I want a refund then I should ask my bank as it was my bank who cancelled the DD. Well yes they did but Egg know full well why this happened. So not only is there a potential policy change here they are being a bit disingenuous stating in effect it is my banks fault and I should tackle them for a refund!

What used to happen (and I guess still does) was when the DD came back as failed with the reason 'No Instruction' they would set up a new one then call for it again unless a payment credited in the mean time.

The process of calling for the DD would start 10 working days after it failed, which means that by the time it debited the account it would be 14-15 working days after it first failed (only if a payment didn't credit within that first 10 working days).

I actually noticed the DD had failed as at first it appeared as a credit to my Egg credit card account and then an adjustment to reflect it had not worked. I spoke to them over the phone about this and you are correct they said it would be resubmitted in about 10 days. Instead I paid the balance by debit card.

Of course they did not mention they would charge interest only that a failed collection charge of £16 was not going to be levied.

As soon as I realised the debit had failed I started asking questions as to why and seeking assurances I would not be charged interest or get a note against my credit record. It was only when the interest charge was placed on the account by Egg and I queried it that they mentioned the direct debit would have been expired by my bank as it was dormant.

You have almost a zero chance of being refunded by your bank so it's better to get in touch with Egg again, I would say to phone them in this particular instance.

It may get complicated though...

I agree and I don't see why the bank should refund the money. It is Egg who are at fault here in my opinion.

Some banks (for whatever reason) won't allow a second Direct Debit to be set up if it has the same reference as one that's previously been cancelled.

Egg use the card number as the reference. If this happens they have no other way to resolve it other than to report the card as 'lost' so that it generates a new card number.

There's one more thing you can do though and that is contact your bank and ask them to reinstate the DD. This may also avoid any problems with a second new DD being rejected.

Dormant DDs don't normally show up on online banking etc but they still show on the banks internal systems. When I worked at a bank you could see old DDs that had been cancelled years ago and others that had the 'Dormant' status next to them.

When they reinstate a DD it'll automatically inform Egg and the DD will all be set up to use again. But... when Egg receive a notification of reinstatement it automatically sets up the DD to the minimum amount. So after you've reinstated it wait a few days before changing the payment amount to whatever you want (either online or over the phone).

OK thanks. I will check all that out once the main issue has been resolved.

Dave

DaveO

Update.

Egg stubbornly refused to cave in.

However I have had the interest refunded in full by my bank as a gesture of goodwill (Intelligent Finance). :beer: IF.

So while I am not out of pocket I still think there is a problem with the system here. That chap from IF agreed that there did seem to be a "hole" in the system as when a DD is declared dormant they are just cancelled without notification to anyone, the customer or the organisation doing the debiting. And that is industry wide not just at IF.

However given the credit card companies are well aware of the concept of dormant DD's being automatically cancelled by banks they ought to have systems in place to deal with it which are more sophisticated than simply trying to collect the DD and when it fails sticking an interest charge on the customer!

Dave

YorkshireBoy

DaveO wrote: »

I still think there is a problem with the system here.

There's a problem with IF and/or Egg's systems, I agree.

That chap from IF agreed that there did seem to be a "hole" in the system as when a DD is declared dormant they are just cancelled without notification to anyone, the customer or the organisation doing the debiting. And that is industry wide not just at IF.

No it isn't. I've already given you an example of how it can/is supposed to work - with Yorkshire Bank and M&S in post #4.

I've also checked my other paperwork and the same has happened with Yorkshire Bank and one of my Halifax cards.

Either IF are fobbing you off, or you're making assumptions. As I say, the problem is with IF and/or Egg, and not "industry wide".

Glad you've got it sorted though.