FOS newsletter - case studys on automatic payments (dd's/card authority)

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issue 82 - can you credit it?

[Amethyst]

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issue 82 - complaints involving automatic payments made by direct debits, standing orders and continuous-payment authorities


December 2009/January 2010
complaints involving automatic payments made by direct debits, standing orders and continuous-payment authorities

Many consumers find it convenient to make automatic payments from a current account or credit card account for their regular financial commitments, such as mortgage or rental payments, utility bills, subscriptions etc. This spares them the trouble of having to remember when each payment falls due. They may also sometimes benefit from discounts offered by suppliers of goods and services to encourage the use of automatic payments.
Automatic payments are generally made by means of direct debits, standing orders or continuous-payment authorities. The exact nature of these arrangements is not something to which consumers generally give much consideration. But it can be important, if things go wrong.
At one time, standing orders were the most common means of making automatic payments. However, they are now used relatively infrequently. Consumers set up a standing order by issuing their bank with a standing written instruction to pay to a specified business, organisation or individual a certain regular amount (usually monthly, but sometimes quarterly or at other intervals).
Standing orders can be set up to continue ‘until further notice’ or for a limited period of time. Any subsequent changes, for example to the amount payable or to the date on which the payment is made, must be initiated by the consumer.
And if the consumer decides not to make any further payments, they must cancel their standing order instruction to the bank – it is not enough simply to inform the recipient of the payments that the arrangement has come to an end.
Direct debits work differently. They are put in place after a consumer gives permission to whoever will receive the payments (for example, a gas or electricity provider or a mobile phone company) to debit their account with the payments due. This permission is known as a direct debit mandate – and the business or organisation receiving the payments becomes the mandate holder. The mandate need not be a signed, paper document and is often given over the phone or through the internet.
The mandate holder tells the consumer’s bank that it has the mandate, and at agreed intervals will then apply to the bank for the required payment. The amount and frequency of the payment can be changed by the mandate holder, so this is a convenient way of paying bills where the sum due is a variable amount. The arrangement leaves consumers with less control over the payments that can be taken from their account than they would have with a standing order. However, the Direct Debit Guarantee Scheme ensures that if a payment is made wrongly under a direct debit, the consumer is entitled to receive a refund from their bank – even if the fault lay with the mandate holder rather than with the bank itself.
The complaints we see indicate that many consumers find it difficult to distinguish between direct debit and standing order payments – and tend to confuse the features of the two. Unfortunately, such confusion can sometimes be shared by some bank staff too, as we illustrate in case studies 82/04 and 82/07.
Continuous-payment authorities can be set up using plastic cards such as credit and debit cards. They operate on the account to which the card is linked, and appear similar in some respects to a direct debit – in that consumers give their mandate to the business they want to pay, and that business then has control over how much is debited from the account and when.
Unlike a direct debit, however, a continuous-payment authority is not covered by any bank guarantee and can only be cancelled by the business that holds the authority. Consumers often find this surprising. They generally assume the bank or credit card provider will ultimately be responsible for any overpayments, as we illustrate in case 82/01.
Because consumers frequently set up continuous-payment authorities over the phone or through the internet, there is often no paper record of what was agreed. If a dispute later arises, this can make it difficult to establish exactly what happened. As in case 82/02, we sometimes have to reach a decision on the basis of whatever evidence is available.
Underlying the arrangements for continuous-payment authorities are agreements between the banks and the card networks. These contractual arrangements will be binding on those who are party to them. However, that does not include the consumer, who will have no knowledge of the agreement and will not have signed up to it. So in case 82/03 we were not persuaded by the bank’s view that, even though the consumer had never given his mandate for the continuous-payment authorities, he should still be liable for the money taken out of his account.
Where a bank or credit card company has made a mistake in connection with an automatic regular payment, it can keep any resulting problems to a minimum by apologising and acting swiftly to put things right.
Case 82/05 illustrates how, by taking extremely prompt action and being willing to ‘go the extra mile’, a bank limited the amount of upset and inconvenience caused to the customers concerned. This in turn meant that although the bank was required to compensate the customers, we agreed that it was fair for it to pay only a very modest sum.
Because many automatic payments are for significant items, such as mortgage, rent or utility bills, problems can build up very rapidly for the consumer if mistakes are not remedied promptly. This is what happened in case 82/06, where the considerable amount of stress and inconvenience caused by the bank was reflected in the amount of compensation we told it to pay the customer.

[ed.]

Re: FOS newsletter - case studys on automatic payments (dd's/card authority)

Useful considering it's our responsibility to maintain the account appropriately.