What are Typical Direct Debit Rules?

Direct debit rules vary from country to country. These rules govern how direct debits, which are electronic withdrawals from a bank account, are to be handled. Typically, these rules cover such things as direct debit authorizations and paperless transactions. Rules regarding direct debits may also cover the initiation of payments. Additionally, rules for direct debits may include those that stipulate how an account holder can cancel them and the procedure followed in the event that a direct debit causes an overdraft.

Often, direct debit rules focus on how these types of transactions are initiated. Depending on the jurisdiction and the banks involved, direct debits may be set up in a few different ways. For example, they can be set up over the Internet or during a face-to-face meeting. Initiation may also occur during a telephone conversation or through an automated telephone payment system.

In most places, there are rules for the authorization of direct debits. Typically, the party who is to receive the money from a direct debit has to obtain the consent of the account holder. The biller cannot simply arrange a direct debit from another party’s account just because he is owed money or knows the account holder’s bank numbers. For example, a cable television company must have the account holder’s permission to debit his account. In many jurisdictions, a customer dispute over an unauthorized direct debit transaction results in a refund to the customer pending an investigation of the transaction details.

Direct debit rules also cover the handling of paperless transactions. In many places, it is not necessary to secure a signature before arranging a direct debit. Billers can arrange these transactions with the verbal or online consent of the account holder. Consent may even be given via a biller's automated telephone system as well.

Some direct debit rules deal with such matters as cancellation of consent for direct debits and overdrafts caused by direct debiting. For example, with reoccurring direct debit agreements, customers are usually required to cancel their consent in writing. Overdraft procedures vary from bank to bank, however. Many banks will complete a direct debit payment, even if doing so will cause the account holder’s account to be overdrawn, and then charge the account holder an overdraft fee. In the event that the direct debit was not authorized or was completed for the incorrect amount, the account holder usually has a right to recover the overdraft fees.