Direct Debit fraud – what can go wrong

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I heard a story on BBC Radio 4’s Moneybox yesterday about Direct Debits, which was pretty alarming, to say the least. It involved an elderly woman with dementia who was defrauded out of £14,000 through Direct Debits. How did it happen and what rights do you have if you’re defrauded by Direct Debit?

How the fraud was discovered

One of Moneybox’s listeners, who they called Sue (not her real name) found that fraudsters had taken £14,000 from her mother. Her mother had moved to a nursing home in 2010 because of her dementia, and three fraudulent Direct Debit payments were set up in 2013. At the time, Sue’s mum was getting round the clock care.

The fraud wasn’t discovered until 2017, after Sue’s mum died. By then, £14,000 had been paid out by the fraudulent Direct Debits. When Sue complained, Lloyds Bank (which her mum banked with) said that the Direct Debits had been set up legitimately. This was despite the fact that Sue had told Lloyds Bank that her mother’s dementia was so bad that she was unable to feed herself or go to the bathroom. When I heard this on Moneybox, my jaw hit the floor.

Vodafone, which received most of the money from the Direct Debits, said it couldn’t tell Sue whose phone the Direct Debits were paying for, because of data protection rules.

How the fraud happened

Although there are checks in place when someone sets up a Direct Debit, it appears (according to Vodafone) that someone can – fairly easily – change the account that the payment comes from. That makes sense because people switch bank accounts from time to time, so it should be possible for them to change the account that their payment comes from.  And you might want to change the account that a Direct Debit comes from if, for example, you’re married or living with your partner, and you want to change who pays the bill. However, there’s obviously something going wrong if a fraudster can – apparently easily – switch the payment so it comes from someone else’s account entirely.

The Direct Debit guarantee

If you set up a Direct Debit, you’re automatically protected by a ‘Direct Debit guarantee’ that says you’ll get your money back if a Direct Debit has been set up in error or the wrong amount has been taken. The rules say you can get a refund straight away from your bank or building society.  It doesn’t matter whether it’s a mistake by your bank or the organisation you’re paying, it’s the bank that must refund your money.

However, what seems to have happened here is that the original Direct Debit was set up correctly by the fraudster, who then switched the paying bank so the money came from Sue’s mum’s account.

Although I’ve never come across a story like this, I have covered Direct Debit stories in the past where banks have been at fault but have refused to refund money taken incorrectly through a Direct Debit. It’s not something I come across frequently, but in the examples I’m aware of, banks have been quite stubborn about refunding the money.

Banks and customers with dementia

Banks seem to struggle with the increasing number of their customers who are vulnerable because of something like dementia. In this case, Lloyds Bank should have used some common sense when Sue told them that her mum had been in a nursing home for three years because of her dementia and that she couldn’t have set up the Direct Debits.  Lloyds Bank did apologise to Sue after Moneybox intervened, and refunded all the money stolen, together with an ex gratia payment.

Both my parents had dementia and, in my experience, it’s very hit and miss as to whether a bank has good processes in place to help customers with conditions like dementia. I dealt with one bank that was helpful and one that seemed to do the wrong thing at every turn.

What you can do

If you have an elderly parent, I would recommend talking to them about setting up a power of attorney. That way they can decide who handles their money if they’re no longer capable of doing so. Both of my parents did this, and it did make sorting everything out much easier, after their dementia progressed.

It also meant we could see what was coming out of their accounts and – in my parents’ case – cancel Direct Debits that were no longer needed. It can be a tricky subject to broach, and the person taking out the power of attorney has to do this while they have the mental capacity to know what they’re agreeing to.

If you have a similar experience to Sue’s, there are two organisations it may be worth contacting: the Financial Ombudsman Service and Action on Elder Abuse. The Financial Ombudsman Service is a free to use complaints service if you’re not happy with the way a financial company has handled your complaint.

Action on Elder Abuse is a charity that specialises in highlighting and advising on elder abuse – both financial and physical. It has a confidential helpline that you can call for advice – on 0808 808 8141.

You can read the full story about the Direct Debit fraud on the BBC News website.

Related articles:

Managing someone else’s money – advice for family and carers

Understanding Direct Debits, standing orders and continuous payment authorities

Understanding lasting power of attorney; ongoing powers of attorney explained

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