Customers complain about difficulty cancelling direct debits
The Banking Ombudsman is calling for banks to offer more help to customers wanting to cancel direct debits, after being contacted by a number of people who struggled to stop money being taken from their accounts.
Ombudsman Nicola Sladden said her office had been contacted by more than a dozen customers who wanted help with their direct-debit authorities.
In one case, a man had serious health problems and his doctor had told him to avoid heavy exercise.
He tried to cancel his gym membership, paid by direct debit, but the gym misunderstood and only skipped some payments before resuming.
He queried this with the bank, which told him it could not cancel the payments.
In another case, a woman gave the two weeks’ notice required in her gym contract but her payments continued. She could not get hold of anyone at the gym to discuss the problem and the bank told her there was nothing it could do.
‘‘When customers set up a direct debit, they authorise the initiator – in both cases here, the gym – to take funds directly from their bank account,’’ Sladden said.
‘‘If an initiator won’t act on a request to cancel or amend a direct debit, a customer can cancel the authority at any time through their bank and does not need the initiator’s permission to do so.
‘‘When customers ask their bank to cancel a direct debit, banks typically ask them to advise the initiator as well to prevent the processing or partial processing of further debits. However, customers do not have to do this before banks can act on their instruction to cancel the authority.’’
She said for customers such as the two trying to get out of a gym contract, it was a hassle that could leave them out of pocket until their banks sorted the problem.
But for some customers, such as those who were in financial hardship, the temporary loss of funds could be a serious matter.
‘‘Financial mentors often work with customers who need to prioritise bill payments – and cancelling direct-debit authorities helps them manage finances if there isn’t enough money to go round,’’ Sladden said.
‘‘Poor direct-debit cancellation practices are not only contrary to industry payment standards, but thwart the efforts of struggling customers and their representatives to manage their money better.’’
Sladden said it was vital that banks gave customers complete and correct information about how they could manage their payment obligations.
‘‘There’s an important distinction between a payment mechanism and a contract. A direct debit is simply a way of collecting payments. Customers should be aware that cancelling a direct debit does not cancel the contract they have with the initiator, and they will still be responsible for meeting the terms of any contracts they signed.
‘‘It’s also important to note that recurring payments on a credit card are not the same as a direct debit and can be cancelled with the merchant only.’’
New Zealand Bankers’ Association chief executive Roger Beaumont said people could cancel a direct-debit authority at any time through their banks and did not require the merchant’s permission to do so.
‘‘When you ask your bank to cancel a direct debit, they typically ask you to advise the merchant as well to prevent the processing or partial processing of further debits.
‘‘It’s best to make sure you don’t owe the merchant any money before you cancel the direct debit.’’
Jon Duffy, chief executive of Consumer NZ, said the organisation’s advisers had noticed a drop in the number of complaints related to direct-debit cancellations over the past decade.
‘‘That said, talking to financialservice groups that deal with a higher percentage of vulnerable consumers, failure to cancel direct is very much an issue,’’ he said.
‘‘In this instance, people aren’t complaining because they are unaware the bank has misled them. Financial hardship advisers are picking this issue up.
‘‘For any consumer, we would expect a bank to follow the client’s instructions, especially during a cost-of-living crisis, when many people are reassessing and reorganising their finances,’’ Duffy said.