BECS Direct Debit Customer protection in New Zealand

The New Zealand Direct Debit scheme offers customer protection for cancelling a Direct Debit authority or instruction. This protection also applies to payments that have been taken incorrectly or without proper authorisation. In this section, we discuss how these important processes work in further detail.

Cancelling a Direct Debit authority or instruction

Your customer can cancel a Direct Debit authority or instruction at any time, by giving written notice of termination both to their bank and to you as the initiator. What’s more, if the customer’s bank receives a request from the customer to cancel a Direct Debit, the bank will refuse any further Direct Debit payment requests from the initiator under that authority or instruction.

Whenever a customer cancels an authority or instruction under the preferred or paperless Service, their bank will block all Direct Debit payment requests from the initiator for nine months from the date of cancellation. This protection is to ensure the customer’s account is not debited under a cancelled authority or instruction.

When reinstating the Direct Debit, you’ll need to ask the customer for a signed approved authority form, then forward the original or a copy to the bank for linking to their account again. If an original authority form is sent, the procedures of the standard service will apply. If it’s a copy, then the procedures of the preferred Service will apply.

Payment Reversals and Recoveries

Under the BECS scheme, there are two standard procedures for recovering duplicated or incorrect Direct Debit payments. These are as follows:

• Reversal on Day 2 without the customer’s bank’s consent, for transactions which are duplicated or which don’t conform to the customer’s authority or instruction

• Recovery of any other incorrect Direct Debit transactions with consent from the customer’s bank

Reversal without specific consent of customer's bank

If your bank, or the Payment Delivery System, either duplicates a transaction on Day 1, or Interchanges a transaction that doesn’t conform to a valid authority or instruction, then the initiator’s bank can reverse the transaction on Day 2.

This can be done without getting specific consent from the customer’s bank, but only if the appropriate transaction code is used. In addition, the initiator’s bank must notify the customer’s bank in writing within 1 day.

Reversals with specific consent of the customer’s bank

Sometimes the customer’s bank account is debited in error and the customer wants to dispute the transaction. In this case, the customer’s bank must make a reimbursement claim in writing and submit this to the initiator’s bank.

The customer’s bank can’t reverse the duplicated or incorrect Direct Debit as a dishonour. It can only reverse the transaction according to the process that’s been agreed upon by the two banks concerned.

In certain cases, the customer can ask their bank to reverse a Direct Debit payment up to 120 calendar days after it was taken. This can happen under the following circumstances:

• When the initiator fails to send the customer written notice of the amount and date of debiting

• When the customer has received a written notice, but the amount or the date of debiting is different from the amount or the date specified on the notice

When the initiator’s bank receives the dispute, it must let the initiator know right away, then work with the initiator to refund the Direct Debit payment to the customer’s account.

Direct Debit Payment Disputes

There are two main types of disputes that can occur in regards to Direct Debit payment:

Transaction Disputes

Here, the Initiator’s bank gets an email about a disputed transaction. This usually happens after the customer (Acceptor) makes a complaint, either to the Initiator’s bank branch, Initiator’s bank point of contact, or the Acceptor’s bank itself.

The email request may ask for information about the disputed transaction and possibly the Authority itself. When the customer has not been properly notified, the email is likely to inform you that a payment reversal will be carried out.

Banks will only be involved in a transaction dispute if the Acceptor asks their bank to reverse a Direct Debit within 120 days after the original payment. This can happen for either of the following reasons:

• The acceptor didn’t receive written notice of the amount and date of each Direct Debit

• The acceptor received written notice but the amount or the date of debiting is different from what’s specified on the notice

Authority Disputes

In this scenario, the initiator’s bank will receive an email about a disputed authority. This happens after a complaint from the acceptor. The request will ask for information about the disputed transaction, as well as for the authority itself for that particular Direct Debit.

For example, if GoCardless is the Direct Debit initiator, we would be required to produce evidence of the acceptor having given us the Direct Debit authority, along with any additional details that the acceptor's bank may ask for.

Depending on the particular Direct Debit service options, required information could include the following:

• For the standard initiator: If the acceptor's bank had only received a copy of the authority and it’s within 120 calendar days after the date of the first transaction under the Direct Debit authority, then the bank can request the original

• For the preferred initiator: A copy of the authority is sufficient

• For the paperless initiator: Details of the instruction provided to the acceptor

If the initiator can’t produce a valid authority or instruction within the space of 5 business days, the customer’s bank can debit the funds from the initiator’s bank.

When can an Authority be considered unauthorised?

For paperless authorities, the acceptor can ask their bank to reverse a Direct Debit. This can be done up to 9 months after the date when the initiator sent the first Direct Debit under the authority. The acceptor must also be reasonably satisfied that the authority authorised their bank to debit their account with the Direct Debit amount.

But if there’s no evidence to prove that the Direct Debit authority was provided, then the acceptor bank can notify and then debit the initiator’s bank for the disputed amount. In the case of GoCardless as the third party provider, the initiator’s bank will then debit GoCardless for the funds.

What happens when there's no advance notice?

In certain cases, an agreement can be made between the payer and the merchant (on behalf of GoCardless) that no notice will be provided. But this would be unusual, as GoCardless provides a minimum notice period of two business days.

The customer may raise a dispute in writing to their bank in the following cases:

• If advance notice has been waived for agreed amounts taken according to a schedule

• If the customer hasn’t been given appropriate advance notice for changes to the agreed amount and/or timings

When either of these things happens, the customer’s bank may either reverse or alter a Direct Debit transaction, by debiting the amount through the initiator’s bank. This only applies if the Direct Debit was made within 120 days from the date of the original Direct Debit.

In addition, the customer’s bank must give written notice to the initiator’s bank on the same day as making the reversal.

How can I reduce the risk of facing a customer dispute?

You can reduce the risk of customer disputes by taking the following steps:

• Give proper advance notice. This allows customers to raise any issues or cancel the payment before it gets taken

• Provide good customer service. You should have clear contact information and efficient customer services procedures in place. This will encourage customers to come to you with any issues before seeking a refund from their bank.

• Process cancellation requests promptly. This avoids any attempts to take payments on a cancelled authorisation

• Follow the Direct Debit scheme rules. Make sure you and your provider follow the Direct Debit scheme rules, including the latest updates

Blocking preferred or paperless Initiators

The customer’s bank has the right to refuse to link a preferred/paperless initiator’s authorisation code to a customer’s account. This generally happens when the bank has concerns about the integrity of the initiator. In this case, the bank should inform the initiator’s bank in writing that it will not link the authorisation code.

The initiator can respond by sending an original signed approved authority (if using the standard service) or a copy of the signed approved authority (if using the preferred service.

However, the customer’s bank can still refuse to link the authority. It is not obliged to say why, and it may do the following:

• Return the authority to the initiator answered ‘authority refused’

• Dishonour the Direct Debit Transaction answered ‘payment unauthorised’

How does GoCardless handle reversals?

GoCardless helps you manage reversal requests. We’ll inform you right away if one of your customers makes this request. Our processes are designed to minimise risks of a reversal requests by making sure you always follow Direct Debit scheme rules.

We do this by offering you the following:

• Clear and compliant payment pages

• Sending advance notices by email on your behalf

• Following the latest rules. We keep up to date with all Direct Debit scheme rules and help you do the same

To find out more about collecting Direct Debit payments with GoCardless, visit our New Zealand page.