Cancelling a direct debit authority: what are the legal rights of the parties involved?

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frednz

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#2231128 5-May-2019 13:11

andrewNZ: This might have been covered, but...

Your bank CANNOT cancel a direct debit.

A direct debit is an agreement between the company (billing party) and you. You have to notify the billing party (usually in writing) that you have revoked the authority.
The revocation won't (can't) happen immediately, the systems are automated and payments are normally planned days in advance.

The agreement should explain all of this and will specify a notice period.

Once you have notified them accordingly and the notice period has passed, they no longer have the legal right to use the direct debit.

If you want total control you need to use automatic payments or pay manually.

I disagree that your bank cannot cancel a direct debit, your bank must do this immediately if you instruct it to! This view is supported by the Banking Ombudsman:

https://bankomb.org.nz/guides-and-cases/quick-guides/payment-systems/direct-debits/

It says on the above page with regard to cancelling a direct debit that:

You can do this at any time, through your bank or the direct debit initiator. The bank must cancel the direct debit when you tell it to do so, but it will also ask you to notify the direct debit initiator. This is a precaution to prevent the initiator unintentionally continuing to send direct debit instructions to your bank.

If you cancel a direct debit authority but keep using the initiator’s services, you will have to pay in some other way. Direct debits are merely a method of collecting payments. Banks are not responsible for the underlying contract between you and the initiator.

Importantly, if your direct debit is from a credit card, the expiry of that credit card does not necessarily remove the direct debit authority, and you may still be charged.

If your bank fails to cancel a direct debit authority and you suffer a direct financial loss as a result, you may be entitled to compensation. This could include a refund for overdraft fees or penalty interest resulting from the unauthorised direct debits.

So, in the example quoted at the start of this thread, the bank did cancel the direct debit when the customer asked it to do so, but warned that the merchant could reinstate it and use another direct debit if they considered they were still legally owed money by the customer.

Therefore, to cover the possibility of the merchant reinstating the direct debit, I think a written instruction to the bank which states that you want it to cancel any direct debits, and any reinstated direct debits from Merchant XYZ, would be effective because the bank must obey your instructions. If your bank won't obey your legal instructions, then you should place your business with another bank!

andrewNZ

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#2231139 5-May-2019 13:40

Well that's news to me.
I don't know a lot about the process, but from what I think I know of how it used to work, that seems hard.

My (very basic) understanding is that places lodge a list of accounts they are authorised to debit. Then at payment time they supply a list of accounts and values to debit. If the bank has cancelled the authority between authorisation and debit, the payment fails.
Large places like telcos however have an ever changing list of customers, so every day lodge the list of authorisations and then the list of payments.

Maybe the last part has changed.

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#2231143 5-May-2019 13:46

KiwiSurfer:

Ge0rge: Certainly doesn't seem to fit any of the three methods mentioned above (except maybe paperless, but there were certainly no recorded conversations) - doesn't seem fully legit now I've read through here

Fits in with the paperless process above. Auckland Transport has this too. Just type in any account number in your online AT account and off you go. I've seen this elsewhere too possibly with Spark and/or 2degrees. Don't think a recorded converstation is a hard requirement—just some proof that the organisation has controls in palce. Perhaps they pass on the name to the bank so they can check it or something like that? I hope anyway.

AFAIK not a hard requirement to have evidence for paperless. The responsibility falls on the DDI who have to cough up if they make a mistake. The approving bank takes it all into account when approving the DD facility. In the case of the 2 degrees example, no doubt 2D have the clients ID and details and can attempt to recover funds if a mistake has been made.

I should also point out that there are two types of direct debit deductions - variable and fixed. Examples of the former are utilities, credit cards, suppliers and they have to give 10 days notice before taking funds out of your account. This gives you time to make sure there is enough money in the account on that date. Fixed payments (like a loan payment or your rates) don't give you that notice as they are on set days for a set amount (e.g. every 20th of the month for $xx). DD are also not to be used as debt collection tools so no pinging you every other day to see if you have money in your account.

ANglEAUT

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#2231334 5-May-2019 22:25

mattwnz: ... , and is probably something banks should educate customers about. ...

What? And stop the banks making money?

richms: ... , they want to make it hard to get the information so you are more likely to forget to pay them and get a late fee. ...

& even more money?

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MileHighKiwi

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#2231740 6-May-2019 16:07

When a DD has been cancelled with the bank and the initiator, the payments must stop. Initiators cannot use the DD to recover funds at a later date. If it was cancelled by the bank the payment will dishonor. In fact when a DD has been cancelled there's a 9 month stand down where the initiator cannot debit your account. When I bought my last house the lawyer said "go and cancel your DD for the rates" but the direct debit product manager where I work said "don't do that, or the council will not be able to do the DD for rates on the new house for 9 months".

If an initiator has debited funds after you believe it was cancelled, your bank did not cancel it properly.

frednz

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#2232136 7-May-2019 09:12

MileHighKiwi:

When a DD has been cancelled with the bank and the initiator, the payments must stop. Initiators cannot use the DD to recover funds at a later date. If it was cancelled by the bank the payment will dishonor. In fact when a DD has been cancelled there's a 9 month stand down where the initiator cannot debit your account. When I bought my last house the lawyer said "go and cancel your DD for the rates" but the direct debit product manager where I work said "don't do that, or the council will not be able to do the DD for rates on the new house for 9 months".

If an initiator has debited funds after you believe it was cancelled, your bank did not cancel it properly.

Another authoritative article about the situation is on the Consumer site. Here's an extract:

What are your rights if you want to cancel a direct debit? Who do you tell first?

Don’t let your bank fob you off and tell you it can’t do anything until you advise the company. You’re entitled to cancel the direct debit directly with the bank at any time – as long it's from a bank account. If you have a direct debit from your credit card you'll have to ask the business to cancel it.

Under the Code of Banking Practice the bank must follow your instructions. It will also advise you to contact the business. If the business doesn’t know you’ve cancelled, it’ll still send payment instructions to your bank. If an unauthorised payment is made, complain to your bank.

But remember – if you cancel a direct debit with a business and you’re still using its services, it will still expect payment. Cancelling the direct debit doesn’t cancel your contract with the business – just the method of payment.

So, it's clear from this that you're entitled to cancel a direct debit from a bank account at any time without first advising the merchant. However, to avoid further direct debits being charged to your account from the merchant, you should advise the merchant in writing that the direct debit with the bank has been cancelled and that you will deal direct with the merchant over any further charges that may be made.

As the article says, don’t let your bank fob you off and tell you it can’t do anything until you advise the company.

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