Direct Debit Guarantee – Where does the responsibility lie?

The Direct Debit Guarantee ensures that consumers can reclaim funds they have paid via the Direct Debit Scheme. Refunds happen when errors have been made either by the service user, for example their electricity supplier, or by the bank concerned.

The Direct Debit Guarantee allows payers an immediate refund where errors include:

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  • Taking payments on a date other than the due date
  • Taking payments at a different frequency than that agreed
  • Taking a payment of a different amount than agreed or notified
  • Taking payment after a direct debit instruction has been cancelled

Standard practice, in line with the Direct Debit Scheme Rules, is that indemnity claims are made to the corresponding bank i.e. the bank of the payer. When the bank is satisfied that the claim has validity, the bank will make the re-payment and reclaim it back from the supplier.

Some suppliers, wishing to offer better customer service have seen a benefit in handling the refund of payments themselves. This causes a risk of confusion, because it becomes unclear on an industry wide basis where the responsibility sits. There may even be instances where the same refund is made by both the scheme and the supplier.

The recent issue of the Bacs Service User’s Guide1 highlights this and re-iterates that indemnity claims should be made through the bank. Service providers should review this before altering their policy on making refunds in such cases.

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1 The Service User’s Guide and Rules to the Direct Debit Scheme Version 4.0 December 2014