direct debit

Direct debit is an UK automated bill payment service, covered by guarantee. Payments are collected automatically from most UK bank accounts, and debited on a regular basis. You agree the amount and date of debit with the billing company, who can only change this after written notification.

You can set up a direct debit by either filling in a form or, with some organisations, by telephone or internet application. Once the organisation has received your instruction they forward to your bank/building society for processing.

In order to set up a direct debit you have to provide

• The name and address of your bank or building society
• The name or names of the account holder(s)
• Your account number
• Your branch sort code

If your payment date falls on a weekend or bank holiday the company must take the money from your account after the due date, unless they notify you.

To cancel a direct debit simply inform your bank or building society, giving the name of the company being paid, your customer reference number, and the information you gave when you set up the direct debit.

The direct debit guarantee, which all companies must abide to is as follows

• All Banks and Building Societies that take part in the Direct Debit Scheme offer the Guarantee. The efficiency and security of the Scheme is monitored and protected by your own Bank or Building Society.
• If the amounts to be paid or the payment dates change, the company will notify you normally 14 days in advance of your account being debited or as otherwise agreed.
• If an error is made by the company or your Bank or Building Society, you are guaranteed a full and immediate refund from your branch of the amount paid.
• You can cancel a Direct Debit at any time by writing to your Bank or Building Society. Please also send a copy of your letter to the company.

Almost 32 million people in the UK now use Direct Debit, paying an average of 6 bills using this method. In 1999, nearly 1.9 billion direct debits were processed by the high street Banks and major Building Societies. In 1998 70% of cable and satellite bills, 75% of mortgages, 46% council tax, 42% of water rates, 36% of TV licences, 45% of gas and 42% of electricity bills were paid by Direct Debit.

Sumarised from http://www.directdebit.co.uk

Most companies who issue bills monthly or quarterly prefer to receive payment via direct debit. This is because it so much cheaper and easier for them to process an electronic instruction than it is to have to wait for a physical envelope containing a cheque to arrive which must be opened an processed by a real person. The rate of non payment among direct debit customers is usually far smaller than that among cash customers, who despite the term used, are usually never allowed to actually use real hard cash to pay. Because of this preference, customers are often offered incentives to pay by direct debit.
e.g.

Banks can, and do, charge lower rates of interest on loans or credit cards.

Power and Telephone companies offer lower fixed monthly charges.

Clubs, and similar organizations, sometimes waive initial joining fees for members paying subscription via direct debit.

So, it would seem that direct debits can benefit everybody.

There is, unfortunately, a darker side. By signing a direct debit mandate you allow the banking system to play fast and loose with your money in a way which can go horribly wrong. My rant on this subject originally read something like this …

“Contrary to the propaganda issued by BACS, Direct debit is nothing less than a manifestation of true evil; an automated method by which various commercial organizations can trick you into letting them steal from you.so called guarantee offered is actually worth very little. In reality there is nothing to ensure that amounts taken have really been authorized by you or that the 14 day notice really has been given. It is all smoke and mirrors.”.

I have worked on direct debit software and know that for example, before paying out, your bank will not check that you have actually signed a direct debit mandate, will not check that the debit is for the correct amount, and will not check that you have been given the required amount of notice necessary in the case of what is called a variable direct debit. If something goes wrong the onus is on you to establish that an error has been made.

An example of this is that my company once, a long time ago, produced software which went live unable to distinguish between pennies and pounds, i.e. we got the position of the decimal place wrong. Instead of taking say 50.00 from someone's account we would take 5000.00. This happened to thousands of people and made front page news in a national newspaper. ( I think it was The Sun, and the headline was YUPPIE PHONE BILL HORROR).

It can also sometimes be very difficult to stop a direct debit once it starts. That's something I have personally been on the receiving end of. I once lost more than 300 UKP to an insurance company who insisted on collecting another years worth of premiums from me without my knowledge.

So, if I may summarise, direct debit is a bad thing