The term 'Direct Debit' is often misused as a synonym for any and all regular payments. In fact, there are three very different types of regular payment, and your rights vary dramatically with each:
1. Direct Debit
• typically used to pay household bills
• the beneficiary must claim the amount
• the amount claimed can vary each time
• the payer is protected by the Direct Debit Guarantee
• the customer can cancel at any time via their bank
2. Standing Order
• an instruction from a customer to their bank, to pay a named beneficiary on a regular basis
• the amount remains fixed each time
• as with Direct Debits, Standing Orders can easily be cancelled by the payer’s bank
3. Recurring Payment (formerly Continuous Payment Authority)
• credit or debit card details are given by the customer to the beneficiary
• there is no fixed date or amount
• to cancel, the customer must contact the beneficiary directly
If you’re paying a company on a regular basis, the chances are it’s either a Direct Debit or a Recurring Payment; Standing Orders are favoured for recurring customer-to-customer payments (to pay your mate £20 per week, say), or if the amount remains fixed (e.g. monthly rent, or a membership fee for a local club).
What are my rights?
You’re completely covered with Direct Debits. If you have the choice, this is the method to go for. The Direct Debit Guarantee states:
• if there is a change in the amount to be paid or the payment date, the person receiving the payment (the originator) must notify the customer in advance
• if the originator or the bank/building society makes an error, the customer is guaranteed a full and immediate refund of the amount paid
• customers can cancel a direct debit at any time by writing to their bank or building society.
Due to the nature of Standing Orders, it’s uncommon to encounter any major issues; the instruction is initiated by the customer, and can be cancelled at any time. Also, unlike Direct Debits, the amount is fixed, so there won’t be any surprises on your statement.
Recurring Payments, on the other hand, are a completely different kettle of fish. Customers provide their credit or debit card details to a company, and essentially give them carte blanche to use them as they see fit. There’s no way to cancel as such, and any disputes must be taken up directly with the beneficiary.
Obviously it’s not such a concern if you’re paying a reputable company, but be wary if the company is difficult to contact or - worse still - goes into administration. Some specialist sites (cough) have been known to intentionally overcharge, and rely on the embarrassment factor to keep customers quiet. Not that we'd know anything about that. Obviously.
How do I know who I’m paying?
Your bank can give you a list of any Standing Orders or Direct Debits that are set up on your account. If you have online banking, you can usually check there.
As a general rule, Standing Orders and Direct Debits only require your sort code and eight-digit account number to set up; Recurring Payments demand the long number across the front of your card.
How do I cancel Recurring Payments?
Don’t worry if you discover you’ve had a Recurring Payment set up. In many cases you can switch to a different method.
1. Switch to Direct Debit
You mightn’t have had a choice when you initially signed up, but some companies have only recently introduced Direct Debit, so it’s worth giving them a call to see if you can make the switch.
2. Manual payment
Some companies will allow you to pay manually. It might seem a bit of a hassle, but it’s definitely safer than letting the company choose when and how much to debit your account.
3. Use a prepaid card
With prepaid cards, you can’t be debited with any more than you’ve put on. Not all prepaid cards can be used for Recurring Payments, but it’s worth a shot.
How do I cancel my Recurring Payment?
There’s no way to ‘cancel’ in the traditional sense; ultimately, you have to convince the company to stop using your credit/debit card details. Here’s the best way to go about it:
1. Contact the beneficiary directly
Any legitimate company will accept a request to cancel your Recurring Payment straight away (unless you’re still within your minimum term, in which case you might leave yourself in breach of contract). If your request isn’t accepted, make a formal complaint in writing.
2. Contact your credit/debit card company
Phone your bank or card company and explain that you wish to dispute “unauthorised transactions”. Under the Banking Code, it’s their responsibility to investigate and take action on your behalf.
3. Contact the Ombudsman
If you’re unhappy with the response from your bank, make a complaint to the Financial Ombudsman. It’s free, quick and easy to do. Often, the mention of the Ombudsman will be enough to spur your bank into action.
4. Cancel your card
Cancellation can be used as a last resort. However, when you cancel a credit card, the company often keeps the account open for a up to a few months, to ensure there haven’t been any unprocessed debits. During this time, you’ll still be open to Recurring Payments, which, in turn, will force the account to stay open longer. It’s a cycle that can go on indefinitely, so best to try 1-3 in the first instance.