Direct Debit question please?

saf87

Petel wrote: »

Hello Mark and thanks again for your replies.

In answer to yours at post 38. As stated, this question came up in conversation at my place of work and I said that I would try to find out what the situation was with regard to what appeared to be ( and apparently at one time was ) two different types of Direct Debit.

Thanks to your own and other replies, I now think that I understand that there is now only one type ( which may or may not have a clause added ) and the use of this AUDDIS system, where seemingly unauthorized reinstatement can happen and I can pass this information on to the interested parties at my place of work.

I would wish to ask however, could anyone please tell us how this clause is worded, so that we can see if it is on any D/D agreement before we sign it and, how do we know if a company or service provider is using the AUDDIS system?

I must admit that you chaps have lost me after Marks first reply and it will take me some time to catch up. Nevertheless, many thanks to all for the input provided.

Regards, Petel

99% of service users are now using AUDDIS and since the 1st of Jan 2008 AUDDIS is the only setup mechanism available to new service users. Very few service users are still using the non-AUDDIS system, I haven’t seen a non-AUDDIS DD for a good couple of months.

The direct debit scheme does not recognise any clause in a contract between a consumer or service user which purports to force a consumer to pay via Direct Debit. The scheme was designed as purely a payment mechanism separate to any contract. Service users should not abuse the AUDDIS system to reinstate cancelled DDI's.

The original aims of the scheme were to provide a mechanism which would have greater flexibility than standing orders and guard against the pitfalls of debit/credit card continuous payment authorities. It is for this reason that the scheme gives a payer an unrestricted right to request either the payers bank or service user to cancel a DDI regardless of any contract.

If a service user then subsequently reinstates the DDI or creates a new one without the customer’s authority then they are abusing the system and a refund/indemnity claim should be raised by the payer’s bank.

The weakness in the scheme which allows a minority of service users to abuse AUDDIS, ultimately comes down to a lack of supervision from BACS, the DD steering group and sponsoring banks. If the payer’s bank identifies s a service user which is regularly abusing AUDDIS then they are supposed to report them to the DD steering group who will then in co-operating with the service users supporting bank undertake an investigation. I know from my own experience that even if a complaint is made very little gets done especially if the service user happens to be major player.

The above wouldn’t be such an issue if the payers bank actually did as they are supposed to and issue a refund/indemnity claim. The problem is as I have commented earlier the general reluctance amongst many banks to want to make a claim. It’s just so much easier for them to fob the customer off and hide behind the pretence that the customer must contact the service user and that the bank are powerless.

saf87

Mark_In_Hampshire wrote: »

Would you therefore agree that the ability of any payee to ride roughshod over the minimum notification stipulation renders direct debit a very dangerous way to pay with some payees, BT being one such example, because there is no meaningful notification period required?

Abuse of the notice requirements + abuse of AUDDIS + a payers bank which isn’t willing to help = a dangerous direct debit.

Mark_In_Hampshire wrote: »

The charity receives an apparently valid mandate instruction and the name, sort code and account number all check out. How do they confirm it's genuine?

The amount of cheeking by a service user depends on the level of risk they are willing to take. The kind of checks they can do include credit reference checks, fraud database checks i.e. CIFAS, BT phone directory check, Electoral role check, royal mail check ect ...

Ultimately if a service user is setting up paperless DDI's then they have to accept the risk that if the payer disputes giving authority they must honour any indemnity claim.

Mark_In_Hampshire wrote: »

The bank have to refund the account holder. Or so I thought. However they do not have to refund any bounce fees - is that correct? BACS certainly think it is.

It is the bank who refunds the account holder and then reclaims this money from the service user who, by taking part in the scheme has agreed to indemnify the bank for any loss as a result of it honouring the guarantee.

In the first instance the bank is not required to refund any charges that it has applied. Bank charges can be recovered from the service user through a separate indemnity claim issued by the payers bank on the customers behalf. I can’t say I have any experience of exactly how this process works as the organisation where I work (co-op) prefer to refund charges direct as a gesture of good will.

System

This thread seems to have identified at least 4 key issues.

1. Some DD originators are sloppy about identity and address checks, giving correct notice of amounts and dates of DDs, and reviving cancelled DD mandates. That is for banks and BACS to police. Customers can complain to BACS if their bank fails to pursue a persistent offender. I don't know whether BACS takes any effective action in such cases.

2. Many bank staff are ignorant of, or pretend to be ignorant of, the terms of the direct debit guarantee. This is between the bank and their customer. It says that if the customer says there is an error in the amount or date of a direct debit, the bank must refund the amount taken, immediately. I.e., IMO, same day. It does not explicitly mention consequential bouncing or overdraft fees, but IMO the bank has no right to take these if the customer claims an error. Also, at this stage, the bank has no right to quiz the customer about details of the error. However, as a matter of goodwill and common sense, the customer may wish to help the bank get ready for the next stage.

3. Banks deliberately or ignorantly foster confusion between their direct debit guarantee to their customer, and their, completely separate, right to make an indemnity claim against the originator. Whether the bank makes a claim is up to the bank, and completely independent of the refund to the customer. However, if banks don't bother, originators don't get a powerful enough message that they have screwed up. This should improve, because the indemnity claim process is about to become automated.

4. Banks and originators foster confusion about what happens if the customer invoked the direct debit guarantee mistakenly or malevolently. If the originator is able to show that the customer was wrong, then (a) the originator can recover the debt, and maybe penalties, from the customer; (b) if the customer has cancelled the direct debit mandate, the originator cannot revive it without the customer's explicit authority; and (c) the bank can apply any reasonable sanctions, and any explicit penalties in its T&Cs, for abusing the direct debit guarantee (including closing the account).

zppp

YoungNick wrote: »

This thread seems to have identified at least 4 key issues.

1. Some DD originators are sloppy about identity and address checks, giving correct notice of amounts and dates of DDs, and reviving cancelled DD mandates. That is for banks and BACS to police. Customers can complain to BACS if their bank fails to pursue a persistent offender. I don't know whether BACS takes any effective action in such cases.

Banks cannot pursue a 'persistent offender'. All the bank can do is raise an indemnity to claim back money from the company where there is an error identified. There is a BACS helpline number on 0870 049 2717 who can investigate what is going on via the banking channels, and they may choose to contact the processor of the payments.

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

YoungNick wrote: »

2. Many bank staff are ignorant of, or pretend to be ignorant of, the terms of the direct debit guarantee. This is between the bank and their customer. It says that if the customer says there is an error in the amount or date of a direct debit, the bank must refund the amount taken, immediately. I.e., IMO, same day.

Most do nowadays.

YoungNick wrote: »

It does not explicitly mention consequential bouncing or overdraft fees, but IMO the bank has no right to take these if the customer claims an error. Also, at this stage, the bank has no right to quiz the customer about details of the error. However, as a matter of goodwill and common sense, the customer may wish to help the bank get ready for the next stage.

Where there is a bank error, there should be no charges. Where there is an originator error, many banks will add the charges accrued to the indemnity raised to get the money back from the company concerned. The bank cannot force them to pay this money back, but they encourage them to do so on the basis of their error.

YoungNick wrote: »

3. Banks deliberately or ignorantly foster confusion between their direct debit guarantee to their customer, and their, completely separate, right to make an indemnity claim against the originator. Whether the bank makes a claim is up to the bank, and completely independent of the refund to the customer. However, if banks don't bother, originators don't get a powerful enough message that they have screwed up. This should improve, because the indemnity claim process is about to become automated.

When a customer makes a request for an indemnity, the bank will refund the amount taken. The reason that they will send of the indemnity, is not only to recover the funds, but also gives the company the oppourtunity to dispute it as a contractual payment for example.

YoungNick wrote: »

4. Banks and originators foster confusion about what happens if the customer invoked the direct debit guarantee mistakenly or malevolently. If the originator is able to show that the customer was wrong, then (a) the originator can recover the debt, and maybe penalties, from the customer; (b) if the customer has cancelled the direct debit mandate, the originator cannot revive it without the customer's explicit authority; and (c) the bank can apply any reasonable sanctions, and any explicit penalties in its T&Cs, for abusing the direct debit guarantee (including closing the account).

I have seen a number of terms and conditions, and they don't specify in the terms and conditions 'abuses of the direct debit guarantee'. Most will have a policy where the bank contacts the customer to discuss the recovery of the funds. There is a possibility that if it is a large amount that has been claimed, and this has been wthdrawn, the bank may deem it as fraud against them, hence the reason for trying to establish contact.

System

Banks cannot pursue a 'persistent offender'.

Yes they can. Originators have to be authorised. If an originator persistently breaks the rules, then its 'sponsoring bank' can withdraw its authorisation.

The bank cannot force them to pay this money back

There is no 'this money'. The bank has mistakenly, though doubtless in good faith, taken £x from the customer's account, has no right to it, and should refund it. Separately, the bank has a claim for £y (which may be more or less than £x) against the originator for the bank's trouble and expense in handling a botched direct debit request. The bank can pursue this claim through the direct debit indemnity channel, or otherwise.

When a customer makes a request for an indemnity, the bank will refund the amount taken.

The customer does not 'make a request for an indemnity'. The customer demands his right under the direct debit guarantee, which is an immediate no-questions-asked refund of the sum the customer says has been taken in error. In addition, the bank can ask the customer to give it further details to help the bank make an indemnity claim against the originator, and no doubt reasonable customers will normally be delighted to help their bank in this way.

davidgmmafan

"You are liable to pay the bank charges. You may be able to sue the payee concerned."

And thereing lies the problem. Consider two scenarios, one in which the DD is paid (in error) and a paid item fee is charged. In the second scenario the DD is not paid so an unpaid item fee is charged. In the first one I was able to argue, and the bank agreed, given that the transaction which gave rise to the direct debit has been reversed surely the charge cannot stand. I could not make this argument in the second scenario, which is much worse as the DD could've bene setup wrongly by a company I don't have anything to do with.

Initally both parites told me to take it up with the other, this is what would happen in the latter scenario IMO except this time I wouldn't get a resolution.

"There is, as Gavin points out, a mechanism by which the bank can allegedly get their charges refunded by the payee, and then refund you.

I'd be intrigued to see how many people have actually been able to take advantage of that."

I personally haven't heard of anyone benefitting from this, but believe it would make sense if there was something buried in the rules to that effect. You can esaily imagine a scenario, like the one I quoted above, a company sets up a DD in error. The person has just enough money in thier account to pay the mortgage, bills etc etc and they are all returned because someone hit the wrong button. It cannot be right to have the company and the bank blame each other and the poor customer is stuck in the middle.

The trouble is many in banks typically don't even have an awareness of the absic direct debit guarantee which is sent out to customers. Someone higher up could dig out the rules, wherever they are kept, and see if this did apply.

In practice I don't see the banks recovering anything other than the DD amount from the company claiming the DD, its just as easy for them to push a button and cancel the charges.

BTW I should add that I don't buy the argument peddled in the Test Case that the charges are for a service. The charges are for paying the item or not, so the DD guarantee should have some connection to the charges issue.

The reason why reform isn't on the agenda has already been posted - less charges for the banks.

System

davidgmmafan wrote: »

And therein lies the problem. Consider two scenarios, one in which the DD is paid (in error) and a paid item fee is charged. In the second scenario the DD is not paid so an unpaid item fee is charged. In the first one I was able to argue, and the bank agreed, given that the transaction which gave rise to the direct debit has been reversed surely the charge cannot stand. I could not make this argument in the second scenario, which is much worse as the DD could've been setup wrongly by a company I don't have anything to do with.

A bank can levy a (pre-announced) unpaid direct debit fee if a legitimate direct debit request arrives and is bounced. If a request arrives which I say is wrong amount, or wrong date, or from an originator I know nothing of, then IMO the bank has no right to the unpaid direct debit fee. If the bank refuses to refund it, then I would take it up with the Ombudsman, and/or via a small claim in the county court.
The indemnity (or other) claim the bank may have against the originator is a separate issue, which is nothing directly to do with me.
If, after some dialogue with the originator, the bank is satisfied that I was mistaken or malevolent or even fraudulent, then it can apply appropriate penalties, including redebiting the unpaid DD fee. But the essence of the direct debit guarantee, which to judge from this thread many bank staff continue to fudge, is that the bank must refund a direct debit I say is in error, immediately and no questions asked. It follows, IMO, that it must refund any consequential bank charges, and charges resulting from an erroneous bounced direct debit; in both cases, pending the outcome of possible dialogue with the originator.

saf87

zppp wrote: »

Banks cannot pursue a 'persistent offender'. All the bank can do is raise an indemnity to claim back money from the company where there is an error identified. There is a BACS helpline number on 0870 049 2717 who can investigate what is going on via the banking channels, and they may choose to contact the processor of the payments.

Not true , the payers bank can and should make a formal complaint against a service user who is persistently abusing/undermining the rules of the scheme. They can do this direct to the service users sponsoring bank or to the direct debit steering group within BACS. The rules state that BACS will investigate and if necessary issue a warning. A service user who gets more than two warnings is removed from the scheme. All I can say is that complaints are made but im not sure much is ever done.

zppp wrote: »

Where there is a bank error, there should be no charges. Where there is an originator error, many banks will add the charges accrued to the indemnity raised to get the money back from the company concerned. The bank cannot force them to pay this money back, but they encourage them to do so on the basis of their error.

Consequential loss i.e. charges applied by the payers bank can be recovered via the indemnity process. I have copied below what the service user’s guide and rule book says on consequential loss.

Consequential loss

Where the Payer claims consequential loss as a result of an erroneous Direct Debit payment the Paying Bank will claim this from the Service User on a separate Indemnity Claim Form. Consequential loss must be fully justified by the Payer and this justification attached to the claim to the Service User. Paying Banks are not required to undertake immediate refunds in respect of consequential loss claims. If the Payer raises a claim for consequential loss arising as a result of the Service User failing to collect a Direct Debit, the Payer must be directed to the Service User by the Paying Bank. It may be possible for Service Users to arrange insurance against consequential loss liability. Provision of such insurance is at the discretion of the insurer.

I have no direct experience of such claims but would expect banks to be reluctant simply because of the increase work load in processing and managing a separate claim.

saf87

davidgmmafan wrote: »

In practice I don't see the banks recovering anything other than the DD amount from the company claiming the DD, its just as easy for them to push a button and cancel the charges.

Spot on, it’s just so much easier and cheaper for the bank to reverse the fees than to re claim them from the service user. Each banks response will no doubt be different with some happy to reverse charges and others being less helpful.

davidgmmafan

So in other words if the scenario I offered occurs, where one erroneous DD scuppers all the rest you'd best pay some money in pronto to avoid the resulting snowball of charges. I know its unlikely but it illustrates one of the inherent weaknesses in the system, and shows how it is a long way from the assertion that the direct debit scheme is safe and this is monitored by your bank.

I think my threat of the Ombudsmen had some impact on thier decision, as in it'll cost us more in time alone than the £25 he's quibbling over. Also got £25 GWG from the company requesting the DD for the bill I had already paid weeks before. SO I made a profit on the deal, but at each stage I was greeted with very little understanding, empathy or effort.