Direct debits, standing orders and card payments | SavvyWoman

Understanding direct debits, standing orders and continuous payment authorities

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How do you pay your bills? If it’s by direct debit, do you know the rules and how you’re protected? And do you know the key differences between a direct debit and a standing order? Find out.

Understanding direct debits, standing orders and continuous payment authorities

While many of us use automated payments without a problem, when things do go wrong, you can’t always count on the bank staff knowing the rules. So, here’s a guide to how they work (so you can tell the bank staff!):

  • Direct debit. You give the company you’re paying permission to take different amounts out of your account (depending on how much you owe) on an ongoing basis. Money is taken from your account on a pre-arranged date (but the date can vary by a day or two from month to month).

SAVVY TIP: Companies, such as energy suppliers and mobile phone providers, have worked quite hard to get us to pay our bills by direct debit. Not only does it cost them less to process direct debits than cheque or cash payments, but we’re far less likely to scrutinise our bills when we don’t have to pay money at the time.

  • There’s a ‘direct debit guarantee’ in place, which means that your bank should refund money that’s been wrongly debited from your account.

SAVVY TIP: The direct debit guarantee doesn’t just apply if the bank makes a mistake and debits the wrong amount, it also applies if the company you’re paying gets it wrong. It’s something that bank staff aren’t always aware of.

  • Standing order. This gives you more control over your payments than a direct debit as you say in advance how much you’d like to pay and you’re the only one who can make changes.

SAVVY TIP: With a standing order, you know exactly how much comes out of your account and when. The disadvantage is that some companies that give you a discount for paying your bill by direct debit won’t pass on the saving if you pay by standing order, although some will. If the discount is important to you, check before you sign up.

  • Continuous payment authority (also called a ‘recurring payment’). You can’t set up a continuous payment authority through your bank account, it has to be done via your credit or debit card. When you set up a continuous payment authority you agree to make ongoing payments until the company you’re paying says otherwise. It can be convenient, but beware that it can be harder to cancel. In the first instance, it’s down to the supplier to cancel a continuous payment authority.

SAVVY TIP: Although it’s down to the supplier to cancel your payments the introduction of payment regulations in 2009 gave consumers much better rights. The UK Cards Association (which represents card providers) says that recurring transactions are backed by a unique guarantee, enshrined in law, that if a customer cancels the arrangement with a service provider and money is still taken from the card, a customer can contact their credit card company or bank to ensure that they are not out of pocket.

Be aware that when you tick a box or agree over the phone to pay by credit or debit card, you may be agreeing to ongoing payments rather than a one-off.

Problems and complaints

BACS, which operates the direct debit system, says that millions of payments are made correctly every year, but problems do still arise. And when they do, you may find your bank tells you it’s the supplier’s problem and vice versa.

SAVVY TIP: Stand your ground and force the bank to sort out the problem. It’s their duty to do this under the direct debit guarantee. If that doesn’t work, complain to the Financial Ombudsman Service.

If it’s a problem with a continuous payment authority, contact your card provider if money is taken from your account after you’ve cancelled a contract. If the call centre staff say they can’t do anything, tell them about your rights (in my Savvy Tip above) and say you’re protected by the ‘Payment Services Regulations 2009’. It should help!

SAVVY TIP: If you’re asked whether you want to pay for a service on your card, ask if that means you’re setting up a continuous payment authority or if it’s a one-off and try and get an email confirmation of telephone conversations.

Useful links:

You can find information on the basics of direct debit on the Direct Debit website.

Related articles:

5 steps to take if you’re a victim of ID theft or ID fraud

Paying by bank transfer – are you protected if there’s a problem with a phone or online payment?

Understanding your credit card rights under Section 75

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