Fraudulent Direct Debit - have been paying someone else's bills!

Cissi

(I don't know if this belongs on the Small Businesses board but since it's entirely related to one of the major phone providers I thought it might be most relevant on here)

I run a small business, until recently from home, but since last spring we have a (very basic!) office on a business estate. We've got internet phones, with the line rental through one of the major providers, let's call them "X". All this was set up last May, with a number of initial set-up costs, connection fees, modem, router etc. Very recently we realised that there were in fact two direct debits going out from our account to X every month: the expected, fixed fee at the beginning of each month and varying (much larger) amounts towards the end of the month, for which we had received no invoices.

After several phone calls to "X" and to our bank it was revealed that the second Direct Debit was in fact related to a completely different account and phone number, totally unrelated to our business :eek: The only DD mandate that we have ever signed was for the fixed amount each month, and somehow they've used this document to set up a second DD, settling another business' phone bills!

I was told by a giggling "X" employee that this of course couldn't be dealt with by phone, but I'd receive written communication in due course, and the money would be repaid into our account. I immediately wrote to Customer Services demanding immediate repayment of the illegally taken sums. I also requested a copy of the DD mandate used to collect this money from our bank, as I'm very concerned how this could happen. As I see it, the Direct Debit system is built on trust and what's happened here constitutes a very serious breach of trust.

I did get a reply (by email, although I'd sent a letter by post) within a few days, stating that the matter was being looked into. It then took another 3 days before I received the next email, where they basically say "sorry, it was human error". Apparently they can't find out exactly what went wrong as the Direct Debit instruction "was taken by phone" :eek: And, surprise, surprise, they can't find a record of the phone call :eek::eek::eek:

To say the least, this doesn't leave me with much confidence in the system (I'm also shocked that the bank apparently doesn't even check the validity of the Direct Debit request from the supplier), nor in the reliability of "X". I'm very tempted to report them somewhere, but where? Or is this something to be considered "normal"?

They have offered us, "without prejudice", free line rental for 3 months, as a "goodwill gesture". While this would of course be nice, the whole thing somehow feels like a very half-hearted apology for what in my eyes boils down to theft. Oh and yes, they have agreed to repay the money, but apparently this will take a while as their finance department has to transfer sums between accounts first - what??? It's now a week since they admitted the mistake, and they still haven't repaid the money that they've taken illegally!?!

And this is a major provider - I just hope this isn't happening on a regular basis...

macman

I don't understand why you haven't first approached your bank about this. Under the DD guarantee, it's the bank's responsibility to ensure that the DD is authorised. If it wasn't, they have to reimburse you immediately. They can then argue it out with the supplier-it's not your problem.
Why don't you name the provider?

Cissi

We did of course take this up with our bank, who referred us back to the originator, as they don't keep a record of the DD mandates - nor do they even check their validity. Apparently this case doesn't fall under the DD guarantee, as there was no mandate in place for the "fraudulent" DD. The DD guarantee only applies when there is a mandate but the wrong amount is taken etc. I've spoken to the Financial Ombudsman and they've confirmed this.

I don't want to name the companies involved in case we decide to take this further, but I will name and shame once it's been resolved

crazyguy

Cissi wrote: »

We did of course take this up with our bank, who referred us back to the originator, as they don't keep a record of the DD mandates - nor do they even check their validity. Apparently this case doesn't fall under the DD guarantee, as there was no mandate in place for the "fraudulent" DD. The DD guarantee only applies when there is a mandate but the wrong amount is taken etc. I've spoken to the Financial Ombudsman and they've confirmed this.

I don't want to name the companies involved in case we decide to take this further, but I will name and shame once it's been resolved

Wrong it is a dd and therefore the onus falls back to the bank you should name and shame both of them here and you can also claim back any additional cost's incurred from resolving this from calls to postage cost's.

It was an fraudulent dd and the bank are your first port of call.

Mark_In_Hampshire

1. It's the bank's responsibility to refund you
2. This happens more often than you'd think. The bank don't verify or validate DD mandate requests from suppliers nor do they hold a paper copy with your signature. They just go on the payee's say so that you authorised it
3. This can be fraud, or just a simple keying error (two digits transposed by a call centre operative)
4. There is nothing in the DD system to prevent this - there is no real security to the system, accounts with the ability to have DDs have a huge gaping security hole in them
5. Although you may not want to hear this, you need to check your bank account regularly online, as this can happen at any time (the onus is on the customer to spot and report it) and a cancelled DD mandate can be set back up again in the same way thanks to the points above

Mark_In_Hampshire

crazyguy wrote: »

Wrong it is a dd and therefore the onus falls back to the bank you should name and shame both of them here and you can also claim back any additional cost's incurred from resolving this from calls to postage cost's.

It was an fraudulent dd and the bank are your first port of call.

Afraid that's wrong, too. At least in so far as the DD guarantee applies: that only applies to debits taken incorrectly. It's ambiguously worded, but:

1. You agreed with your bank that you'd pay them in the event that a DD bounces;
2. The payee is the one at fault for setting it up;
3. In the event of any "bounce charges" on a direct debit you didn't set up - the bank is not actually obliged to refund under the DD scheme.

That said, on point 3 I'd argue the bank is responsible for looking after your money safely, it is they (not the customer) who has been defrauded, the customer has simply assisted the bank to put a stop to the fraud or error, and the bank Ts & Cs normally have a long section about how they will only release money with the customer's authorisation.

However DD does not require the customer's authorisation to reach the bank (as per post above). All the bank requires is the authorisation by proxy e.g. they go on the payee's say so. So compensation falls outside the DD scheme, but within the Terms of the account.

crazyguy

Mark_In_Hampshire wrote: »

Afraid that's wrong, too. At least in so far as the DD guarantee applies: that only applies to debits taken incorrectly. It's ambiguously worded, but:

1. You agreed with your bank that you'd pay them in the event that a DD bounces;
2. The payee is the one at fault for setting it up;
3. In the event of any "bounce charges" on a direct debit you didn't set up - the bank is not actually obliged to refund under the DD scheme.

That said, on point 3 I'd argue the bank is responsible for looking after your money safely, it is they (not the customer) who has been defrauded, the customer has simply assisted the bank to put a stop to the fraud or error, and the bank Ts & Cs normally have a long section about how they will only release money with the customer's authorisation.

However DD does not require the customer's authorisation to reach the bank (as per post above). All the bank requires is the authorisation by proxy e.g. they go on the payee's say so. So compensation falls outside the DD scheme, but within the Terms of the account.

Well I have the actual DD user guide and have taken a Company to court and won against a fraudulent dd set up on my account so I will beg to differ here.

Mark_In_Hampshire

I clarified the above with BACS when it happened to me. They confirmed (I've pasted the email in here in the past) that the DD guarantee doesn't cover that in this instance (that it does not apply, because I did not set up the DD), and it was the source of a dispute I had with Nationwide once when I ended up being forced to jump ship and leave them with a default for two lots of bank charges (bounce fees for a DD I didn't set up) as they refused to refund them, directing me to the payee.

I thought their position untenable, so told them where to put the charges and moved banks as, when I investigated it and found how insecure the system was, I felt the bank had more responsibility than the payee, or at least, they were as culpable as each other. Glad you had success, though

crazyguy

Mark_In_Hampshire wrote: »

I clarified the above with BACS when it happened to me. They confirmed (I've pasted the email in here in the past) that the DD guarantee doesn't cover that in this instance (that it does not apply, because I did not set up the DD), and it was the source of a dispute I had with Nationwide once when I ended up being forced to jump ship and leave them with a default for two lots of bank charges (bounce fees for a DD I didn't set up) as they refused to refund them, directing me to the payee.

I thought their position untenable, so told them where to put the charges and moved banks as, when I investigated it and found how insecure the system was, I felt the bank had more responsibility than the payee, or at least, they were as culpable as each other. Glad you had success, though

When did this happen as you can by rights seek damages for any cost's here and I can send you the correct part of the user guide that will give you grounds for a complaint.

My situation was simular a fraudulent dd set up so I complained to the company in question who told me to do one and then I took it the FOS FSA and my bank all of whom did nothing so in the end after contacting a Direct Debit trainer I got hold of the user guide made a Small Court Claim and won against the actual Company who set the dd up initialy.

As for the bank they tried to pass the buck and I raised it as a complaint with them and was also given a full appology and awarded some extra cost's back, the problem here is the lack of knowledge surrounding the full rules within the Direct Debit User Guide you just need to approach them with the corrct details and then you can claim every cost back.

crazyguy

Here is a thread I started : https://forums.moneysavingexpert.com/discussion/3086254=

Forgot to add I to spoke with Bacs who I found quite unhelpfull to say the least.

Mark_In_Hampshire

This also comes up in this thread:

http://forums.moneysavingexpert.com/showpost.php?p=29467691&postcount=9

I had a quick look but I can't find my exchange with BACS. It will be somewhere in an old Outlook PST file. They began being helpful up to the point where they had to agree the insecurity and gaps in the system in order to respond to the specific questions I was asking, and more or less told me to shove off when I pushed the matter.

It has always been the case that the customer may file an indemnity claim with the bank and have the bank do the running after the payee to recover the charges but it isn't something the Bank cares to mention. Had I known that at the time I'd have gone down that route.

My experiences with DD are maybe worse than many, so I just don't use it, although annoyingly, even though I don't use it, that doesn't stop me falling victim to these mistakes and fraud.