The Direct Debit Guarantee is a unique and powerful protection for those paying by Direct Debit. It reassures payers that if an error is made with their Direct Debit, they will be entitled to an immediate refund. But who offers the Guarantee, how much does it cover and how long does it last?
What is the Direct Debit Guarantee?
Organisations that collect money via Direct Debit have an obligation to follow the scheme rules. These are written by Bacs, (part of Pay.Uk), and called The Service Users Guide and Rules to the Direct Debit Scheme. An important part of these rules are the mechanisms that provide protection to the payers who have money taken from their accounts. The two cornerstones of payer protection are:
- the Direct Debit Advance Notice – which you can read more about on our Blog, and
- The Direct Debit Guarantee.
The Advance Notice reassures payers that they will be told before any money is debited from their account. The Guarantee reassures payers that if an error is made (either by the collecting organisation or by the payers bank), they will be entitled to an immediate refund. Further, it advises that this refund will be provided to the payer by their bank. These cornerstones give the Direct Debit payer a level of protection and a clear process for refund not provided with other payment methods.
What does the Guarantee say?
The Direct Debit Guarantee provides reassurance to the payer in 3 ways:
- stating that “If an error is made in the payment of the Direct Debit, by (the collecting organisation) 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”.
- confirming to the payer that they will be given advance notice if there are any changes to the amount, due date or frequency of their Direct Debit, and
- reminding payers that they may cancel a Direct Debit at any time by contacting their bank.
The Service User must use the approved wording of the Guarantee in their communication with payers. The only amendments allowed are as follows:
- The Service User must insert their organisations name, and
- They must add the number of days advance notice they are required to provide.
Apart from the additions above, the wording of the Guarantee must be kept as per the approved wording, pasted below.
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 (organisation name) will notify you (number) working days in advance of your account being debited or as otherwise agreed. If you request (organisation name) 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 (organisation name) 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 (organisation name) 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.
Who offers the Guarantee?
The Direct Debit Guarantee is provided by “all banks and building societies that accept instructions to pay Direct Debits”. It is not provided by Bacs – or by the collecting organisation. This is because the Direct Debit Agreement is an agreement between the payer and their bank or building society.
When the payer provides a Direct Debit Instruction, they are giving an authority to their bank or building society. This authority is to allow a named organisation to remove funds from their account via Direct Debit. In return, the payers bank or building society offer them the reassurance that if errors are made, they will receive a refund. Note: The Direct Debit Agreement only covers the payment method, not the underlying contract between the payer and the Service User. This means that if an error is made in the collection amount or date, the payer could receive a refund BUT they may still owe the money for the service / good they contracted to receive.
How much does the Guarantee cover and how long is it valid for?
“The Direct Debit Guarantee is unlimited as to time and amount”.
This means that if an error is identified with regards to the Direct Debit collection, whenever this is identified, the payer can approach their bank or building society and request a refund. Typically, errors will be identified soon after collection of the Direct Debit. Even if the error is only identified a long time after the collection however, a refund can still be requested. This refund can be for one Direct Debit collection or a number of Direct Debit collections depending on the error identified. It would be for the total amount of the Direct Debit, not a partial amount.
How does a payer claim money back under the Guarantee?
The payer would approach their bank / building society and advise that an error was made in the collection of their Direct Debit. The bank / building society will assess the request. They will need to understand the type of error the payer has identified, when it occurred and where the fault lies. Subject to the claim being valid, the bank or building society will then refund the payer.
If the payer approaches the Service User directly to request a refund, the Service User would typically direct the payer to their bank for an immediate refund. This is usually quicker than the Service User providing the refund. It also provides reassurance to the Service User that the payer will only receive the refund once. The Service User could also raise the claim on behalf of the payer.
If the bank or building society determine the error is on the part of the Service User, they will then use the Indemnity claim process. Through this process they request the Service User to reimburse them for monies they have already refunded to the payer.
What if a Payer receives a refund they are not entitled to?
“If you receive a refund, you are not entitled to, you must pay it back”.
Should the bank or the Service User discover that a refund was made that the payer was not entitled to, either the bank or the Service user will liaise with the payer to ensure the funds are returned. Remember, the Direct Debit Instruction relates to the payment method only. Even if a payer requests a return of funds under the Direct Debit Guarantee, they may still owe the money. This could be collected by the Service User via a different payment method.
Where can a payer find the Guarantee?
The Direct Debit Guarantee is often included as part of the sign-up documentation. It is typically included on the bottom of paper Direct Debit Instructions and on internet sign-up screens for example. Telephone operators that take Direct Debit sign-up over the telephone should explain it and offer to read it out to the payer. If not provided as part of the sign-up, it should be provided afterwards, for example with the paperless confirmation letters and/or Advance Notices. It must be provided before the first collection is taken from the payer.
Still got Questions?
If you have questions about the Direct Debit Guarantee, or would like to review if your documents are compliant with scheme rules, please contact us. We will be happy to help!