Direct debits cancelled by bank

markperky

I've just been hit by a problem with direct debits with a credit card.

It seems the banks (Natwest in particular) are being more cautious over bank charges. They are now cancelling direct debits that you have set up if they receive more than one or two consecutive requests for money that gets rejected, because they 'don't want to continually charge people for rejected payments'.

What happens is this: The credit card company requests a payment. It gets rejected due to lack of funds, they then re-request a week later. It gets rejected again, and they then send you a letter saying 'we tried to get money twice but couldn't'. Unknown to you, this triggers the bank to cancel your direct debit, and you are not informed. You pay the bill manually, you think everything is still OK. A month later, the credit card company requests payment again which is rejected but not due to lack of funds but the fact that the DD has previously been cancelled by the bank. This time they send you a letter immediately saying your bank has cancelled the DD, and you check your online account and indeed it has. So you phone the CC company again, pay the bill, and ask them to re-instate the DD. You're told 'that's fine, we've re-enabled it'. You think everything is fine.

It's not. The bank has a policy now of not allowing the same DD mandate to be re-enabled that has the same reference number for 3 months to allow you to pay manually and establish thay you can pay, the CC card company uses your CC number as reference so they cannot set a new one up with a different reference number. So, unbeknown to you, the bank does not re-enable the DD. A month later the same thing happens again.

Unfortunately two missed payments in a row ends up on your credit report.

It seems it's worse than that, because you cannot find out your current DD status online, i.e. whether the DD is in place, until a payment request is made by which time it's too late.

It's unclear to me whether this unilateral cancelling of DDs is consistent with the DD Guarantee, I suspect not. I need to know the legal standing of this, can a bank unilaterally cancel a DD without my authority? If they can, do they have to give sufficient notice? Can I get my credit record amended?

Thanks!
Mark.

Mark_In_Hampshire

Speaking from opinion/experience, not expert:

Yes, it always used to be the case that Banks would cancel direct debit mandates which were repeatedly failing. Your suggestion that this is to prevent charges spiralling makes sense, but that isn't how Banks make money these days, so I'm highly surprised that a Bank would take that action and do themselves out of fees.

With regard to setting up the direct debit again - I am not aware of any unique reference number which prevents the "same" direct debit being set up again. If you cancel a mandate with your bank, there is absolutely no reason why the payee cannot just set it up again. After all, the bank requires no documentary evidence that you authorised it the first time (PIN number, signature) and does not perform any due diligence, they simply set up the mandate for anyone and hand your money out to whoever asks for it.

So if cancelled, there is no reason why the payee can't simply send the same details again and the bank simply then set it up again. Well, actually, there is: "the payee has to get your authority to reinstate the DD" but the bank aren't interested in verifying whether that it true the first time or on subsequent occasions. The payee can simply suggest that they did have your authority.

Your credit report is correct with regard to the missed payments so it can't be amended. To ensure a clean credit history, and my opinion is going to differ from others here I suspect, never go anywhere near direct debit. Make the payments yourself and take charge of that personally, rather than handing the keys to your account to third parties and saying "pay yourselves". If they do not, your credit history will correctly reflect late and non payments.

markperky

Mark_In_Hampshire wrote: »

Speaking from opinion/experience, not expert:
Yes, it always used to be the case that Banks would cancel direct debit mandates which were repeatedly failing. Your suggestion that this is to prevent charges spiralling makes sense, but that isn't how Banks make money these days, so I'm highly surprised that a Bank would take that action and do themselves out of fees.

It's not a question of whether they make money now I think, it's more a question of perception as to whether they are allowing these charges to take place and being seen to be complicit in being 'unfair'. The more they can show they are trying to stop them the more likely they are not to be told not to charge.

With regard to setting up the direct debit again - I am not aware of any unique reference number which prevents the "same" direct debit being set up again. If you cancel a mandate with your bank, there is absolutely no reason why the payee cannot just set it up again. After all, the bank requires no documentary evidence that you authorised it the first time (PIN number, signature) and does not perform any due diligence, they simply set up the mandate for anyone and hand your money out to whoever asks for it. So if cancelled, there is no reason why the payee can't simply send the same details again and the bank simply then set it up again. Well, actually, there is: "the payee has to get your authority to reinstate the DD" but the bank aren't interested in verifying whether that it true the first time or on subsequent occasions. The payee can simply suggest that they did have your authority.

The payee can certainly try to set it up again. I have been told they must use the same reference number as that is the credit card number itself, what's happening is the bank is not allowing it to be re-set up with the same reference number for 3 months.

Your credit report is correct with regard to the missed payments so it can't be amended. To ensure a clean credit history, and my opinion is going to differ from others here I suspect, never go anywhere near direct debit. Make the payments yourself and take charge of that personally, rather than handing the keys to your account to third parties and saying "pay yourselves". If they do not, your credit history will correctly reflect late and non payments.

Yes, but if this is due to a cancelled DD that the bank should not have done when money was actually available to pay, and moreover didn't inform the payer, then the payer has been disadvantaged. If the bank acted in a way that was against the DD Guarantee the bank could be at fault, and the bank can (and should) change the records.

jambosans

markperky wrote: »

It's unclear to me whether this unilateral cancelling of DDs is consistent with the DD Guarantee, I suspect not.

The Direct Debit Guarantee does not cover your scenario.

markperky wrote: »

I need to know the legal standing of this, can a bank unilaterally cancel a DD without my authority?

Yes. (link)

NatWest_T&C's wrote:

6.3.8 We may cancel any Standing Order or Direct Debit on your account if it is unpaid on more than one occasion and we reasonably think that the cleared balance (plus any unused arranged overdraft facility) on your account is unlikely to be sufficient to meet future payments under the Standing Order or Direct Debit.

markperky wrote: »

If they can, do they have to give sufficient notice?

I can't see anything in the T&C's but you can read the document yourself. I would guess the answer is no.

markperky wrote: »

Can I get my credit record amended?

Of course not, the failed payments are fact, and occurred (from my understanding of your post) before NatWest diligently cancelled your Direct Debit.

The reality is, if you're incapable of managing Direct Debits, then like Mark_In_Hampshire suggests, pay by another means. If it's failed twice, who is to say it would not fail again, and incur more charges? NatWest may be saving you some money. Some banks are even more strict with those unable to manage their account appropriately, Co-Op, for example, close your account after three failed Direct Debits/ standing orders.

Personally (and this is not directed at the OP), cancelling payments or closing accounts seems a far more effective way of getting people to learn from their mistakes, and avoids customers accusing banks of profiting from their financial ineptitude.

Mark_In_Hampshire

markperky wrote: »

The payee can certainly try to set it up again. I have been told they must use the same reference number as that is the credit card number itself, what's happening is the bank is not allowing it to be re-set up with the same reference number for 3 months.

Ah, I see what they're using here.

markperky wrote: »

Yes, but if this is due to a cancelled DD that the bank should not have done when money was actually available to pay, and moreover didn't inform the payer, then the payer has been disadvantaged. If the bank acted in a way that was against the DD Guarantee the bank could be at fault, and the bank can (and should) change the records.

I had a look at the BACS website but there doesn't seem to be any mention of the bank's ability to cancel the mandate.

Actually, and oddly, the bank do appear to be being quite responsible here in protecting you from further bank charges, NatWest seem to have found some moral compass previously absent.

With regard to your specific question above, why not drop BACS an email and ask them:

http://www.bacs.co.uk/Bacs/Consumers/DirectDebit/HelpCentre/Pages/DirectDebitGuarantee.aspx

(Edit: the post above would supercede anything BACS might say, since NatWests Ts & Cs will override BACS)

Once it was cancelled the payee is supposed to get your authority to set it up again anyway, so that should not happen automatically, in theory you'd need to contact the payee and resupply the details. Of course your point is that you didn't know it was cancelled. One would imagine a computer generated letter or email is not beyond the wit of man/woman to organise.

I_know_my_ABC_and_my_CMYK

I do know that CO-OP bank cancel a DD if you bounce 2 from the same recipient, but they do send out a generated letter letting you know its been cancelled. They also have a limit of 3 returned DD and then they will close your account.

You can appeal this decision, as I did, and depending on your circumstances they will re instate the account but without any DD set up, for how long I have no idea as I haven't to date re instated any DD.

Mark_In_Hampshire

This does make me wary of a possible trap here. Some payees insist on payment by DD and state this in their Ts and Cs (I remember "Egg" being especially annoyed when I abandoned direct debit altogether)

If the failures are as a result of the payee's error (wrong amounts, wrong dates) the customer could well find themselves in a contract which they must pay by DD, bank charges accrueing, and then no means of fulfilling their contract with the payee since the payee has now put them in a position where they can't pay by DD.

What a mess.

markperky

@jambosans:

OK, 6.3.8 says they can cancel the DD. However, there's no mention of notification for this. So you can have a situation where the DD has been cancelled, but the payer is anaware of this, causing a subsequent payment request later to fail too.

The point is the payee requests a couple of times in quick succession before informing you of a temporarily missed payment. It's temporary as you can still pay before they consider it missed. As soon as you pay it before the next one is due it is a late payment, not a missed payment, which generally doesn't find its way onto your credit score.

However if you get another late payment it is flagged up as two consecutive late payments, and that can end up on your credit score.

The fact that I was not informed of the DD cancellation meant that I then got another late payment. It's made worst by not being able to re-enable the existing DD under the same reference number (a fact I wasn't informed of either and is not in the T&Cs) which is necessary for credit cards, so you can get a third late payment before you realise what is going on.

So as to the question can I get the records changed, and your reply "Of course not, the failed payments are fact, and occurred (from my understanding of your post) before NatWest diligently cancelled your Direct Debit), this is incorrect. The first late payment wouldn't get on the credit score as anything, the subsequent consecutive ones due to the bank not telling me the DD had been cancelled would. In fact the subsequent ones should never have occured if I had been informed, so they at least should be removed IMO.

Mark_In_Hampshire

Your payments were late/missed so your credit history is correct. It cannot be changed. It is a "record of fact" - the reason why the payments were late or missed is not relevant.

NatWest have acted exactly in line with their terms and conditions and therefore are not at fault.

jambosans

markperky wrote: »

However if you get another late payment it is flagged up as two consecutive late payments, and that can end up on your credit score.

So your credit card company only starts reporting to the CRA's after two late payments? This seems an odd practice, but I have to admit that I'm not very well versed in credit cards, so you may be correct.

markperky wrote: »

The first late payment wouldn't get on the credit score as anything, the subsequent consecutive ones due to the bank not telling me the DD had been cancelled would. In fact the subsequent ones should never have occured if I had been informed, so they at least should be removed IMO.

You asked for the "legality" in relation to NatWest cancelling your Direct Debit and also their obligation to inform you. I cited the relevant condition, and with no mention of a notice period we can only assume NatWest is under no obligation to inform you of cancellation. You can therefore not hold them liable for the late payments, as they have not breached their agreement with you.

markperky

Mark_In_Hampshire wrote: »

Your payments were late/missed so your credit history is correct. It cannot be changed. It is a "record of fact" - the reason why the payments were late or missed is not relevant.

NatWest have acted exactly in line with their terms and conditions and therefore are not at fault.

Mmm. You could argue that if the T&Cs state that one or more temporarily missed paymentrequests could result in the DD being cancelled by the bank, and I might not be informed of that, then you could argue I should have checked before the next payment that the DD was still in force.

However, assuming I did that and found it wasn't, the bank not re-enabling the DD for the same reference number would have meant that after phoning the CC company to re-instate it I would still not have a DD in force even though I had been told they would re-instate it, resulting in another consecutive late payment. I can't tell from the online bank's DD status that it had been re-instated until a payment request is made, which is too late, so how do I know? The timings of all this (when the payee is informed by the bank that the DD didn't get re-enabled with the existing reference, compared to when they issue the statement to me) might not and probably wouldn't allow them to inform me in time.

The banks should, IMO, have sent me a notification of the initial DD cancellation, and as the 3 month period lockout is not stated in the T&Cs should have informed me that it couldn't be re-enabled with the same reference for 3 months. That would have fixed everything.