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What is a Direct Debit Guarantee?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 15 November 2016
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    Conjecture Corporation
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A direct debit guarantee is a type of financial agreement that ensures that any payments consumers make using a direct debit from a bank account are processed according to the terms of that agreement. The terms of this type of guarantee often address common issues that may occur with a direct debt transaction and essentially confirm that the payer’s bank will work with the payee’s bank to make sure any issues with the transaction are resolved. The exact provisions contained within a direct debit guarantee will vary somewhat, since those provisions must comply with banking regulations that apply in the country where the bank is located.

The idea of the direct debit guarantee is to protect the interests of all parties concerned in the transaction. This means that the payee must take proper steps to notify the payer when anything about the direct debt transaction changes, with that notification taking place in advance. For example, if the date for the debit is to change for some reason, the payee must notify the payer a specific number of business days before the change is actually implemented. This requirement allows the payer to organize his or her finances to make sure the funds to cover the debit are available as of the new payment date.

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The terms of a direct debit guarantee also protect the payer in the event that the payee makes some sort of error that results in the initiation of a debit that is more than the actual debt being settled. Typically, this provision makes it possible for the payer to receive a refund, either for the full amount of the transaction or a partial refund that represents the difference between the actual amount owed and the amount of the executed debit. This provision helps to minimize the inconvenience encountered by the payer, and in some cases makes it possible to correct the error before any of the payer’s other transactions are adversely affected.

Many forms of the direct debit guarantee allow payers to cease honoring the debit issued by the payee by simply notifying the bank in writing that the debit is no longer authorized. Consumers should also make it a point to notify the payee that as of a certain date, the payer’s bank has been advised to no longer honor debits on the payer’s account, making it possible to terminate the arrangement from both ends. Since banking laws vary somewhat from one jurisdiction to the next, taking the time to read the direct debit guarantee provided by the bank will make it easier to determine what rights and responsibilities are granted to the bank customer, as well as what processes must be followed in order to deal with some type of error or discrepancy.

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