Direct debit
From Wikipedia, the free encyclopedia
Direct debit is a payment method that allows an organisation to instruct their bank to collect varying amounts directly from customers' accounts.
There are generally two ways to set up a direct debit: One method requires the customer to instruct his or her bank to honour debit notes from the organisation, the other one just requires the customer to give an authorisation to the organisation making the collections. The availability of these methods varies between countries and banks.
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[edit] United Kingdom
In the United Kingdom, Direct Debit requires the customer to instruct the bank first, although this task may be carried out via the originator (payee).
Before a company can set up direct debits from its customers (you cannot have direct debits paid to individuals), it has to be vetted by its bank. This is to stop it defrauding customers. If a lot of customers complain about direct debits set up by a particular company then the company may lose its ability to set up direct debits.
Banks also operate a Direct Debit guarantee. In this, if a customer disputes an amount that has come out of their account by direct debit, they can contact their bank; this money will then be returned within 24 hours. It is then the billing company's responsibility to ask the customer for the money. However, the billing company is not automatically liable under the guarantee for any bank charges caused by the billing company's error, for example if an incorrect direct debit transaction causes the customer to go overdrawn.
To set up a direct debit, nothing needs to be signed by the customer, which is why the system is so strongly regulated. With the details needed for a direct debit, the only things that can be done are setting up that direct debit and depositing money into the account. Some types of bank account do not allow direct debits, typically all current accounts do as well as some deposit accounts.
The main flaw in the direct debit system is that, although originators (the organisations requesting the money) are required to give customers a period of notice before any change in the amount of a direct debit, there is no way for a bank to verify that this notification has taken place before allowing a direct debit to be paid from a customer's account. Customers are usually unaware that a mistake has been made until after an erroneous amount has already left their account. For paying regular amounts that do not change, standing orders are more appropriate, as they do not give the payee any control of the dates and amounts of payments.
[edit] Germany
In Germany, banks generally provide direct debit (Lastschrift, Bankeinzug) using both methods since the advent of so-called Giro accounts in the 1950s.
The Einzugsermächtigung (direct debit authorisation) just requires the customer to send an authorisation to the organisation making the collection. Although organisations are generally required not to instruct their banks to make unauthorised collections, this is usually not verified by the banks involved. Customers can instruct their bank to return the debit note within at least six weeks.
This method is very popular within Germany as it allows quick and easy payments, and it is suited even for one-time payments. A customer might just give the authorisation at the same time she or he orders goods or services from an organisation. Compared to payments by credit cards, which allow similar usage, bank fees for successful collections are much lower.
To prevent abuse, account holders must watch their bank statements and ask their bank to return unauthorised (or wrong) debit notes. As fraudent direct debit instructions are easily traced, abuse is rare. However, there can be issues when the amount billed and collected is incorrect or unexpectedly large.
The Abbuchung ("posting off") requires the customer to instruct his or her bank to honour debit notes from the organisation. Direct debits made with this method are verified by the customer's bank and therefore can not be returned. As it is less convenient, it is rarely used, usually only in business to business relationships.
[edit] The Netherlands
In The Netherlands, like in Germany, an accountholder can authorize a company to collect direct debit payments, without notifying the bank.
An authorization may be ongoing, or one-time only. Transactions arising from an ongoing authorization (recurring fees) can be contested, and will be rolled back immediately. One-time only authorizations can not be easily contested, but the collecting organization must be able to produce a signed and dated authorization card specifying the amount (to be) debited. Another security measure is a "selective block" whereby the customer can instruct the bank to disallow direct debits to a specified account number (blanket blocks are not available).
Collecting organizations must enter into a direct debit ("incasso") contract with their bank. The collecting organization is required to present to the accountholder's bank, upon request, a signed authorization card ("machtiging"). If this card cannot be presented, all direct debit transactions may be considered to be fraudulent. Some online shops offer the possibility of paying by direct debit, but since they typically do not receive a customer's signature, their payments may not be honored.
Two kinds of direct debit can not be contested; one-time only authorizations ("eenmalige machtiging") and payments made to licensed lotteries.
[edit] Japan
Direct debit is a very common payment option in Japan. When signing up for a service, such as telephone, you are usually asked to enter your bank details on the service submission form, to set up for automatic payments, and the company you are signing up to will take care of the rest. Sometimes, but not always, you are offered the possibility to enter your credit card details instead of your bank account details, to have the money directly debited from your credit card instead of your bank account.
[edit] Australia
In Australia, like in Germany, an accountholder can authorize a company to collect direct debit payments, without notifying the bank.
