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What Are Dormant Direct Debit Rules?

The direct debit dormancy rule is designed to protect bill payers by cancelling a direct debit rule after a long period of inactivity, but it can also lead to issues if the account holder is unaware of the change.

Direct debit meaning

A direct debit is an arrangement for money to be automatically transferred from your account to another on a recurring basis. For instance, if you have a monthly bill to pay, you could set up a direct debit rule so that this payment occurs automatically on a specific day each month so that you don’t have to keep making recurring payments manually. A direct debit rule may also be referred to as a direct debit form, direct debit mandate, or direct debit instruction (DDI). Setting up a direct debit means you’re giving a company permission to take money from your account, and typically you’ll be notified by the company whenever this takes place.

This doesn’t have to be a fixed monthly price – the company you’re paying will be able to determine how much they take from your account based on how much you owe for that period. Meanwhile, a standing order is similar to a direct debit, but for a fixed amount each time. For example – your rent is unlikely to change month-to-month, so you could use a standing order for rent, while an electricity bill might change each month, so you’d use a direct debit wherein your provider will charge the amount owed.

Direct debits can be very useful, saving you time and effort, and ensuring you never miss a payment and face late fees. Over 48% of bill-payers in the UK use direct debits for bill payments.

What is a dormant direct debit?

While direct debit rules remove a lot of the legwork when it comes to monthly payments, it is important to keep track of them and monitor your direct debit activity to ensure everything is as it should be. It’s especially important that you remember to cancel direct debit arrangements you no longer need, so you’re not paying anything you shouldn’t be.

In order to prevent that from happening, Bacs – the governing body that regulates direct debits - created the dormancy rule in 1997. The dormancy rule means that if a direct debit has been inactive for a certain period of time, then it will be removed from the system.

This is to prevent companies from taking money from a customer’s account without permission. If, for example, you were to switch electricity suppliers without closing the direct debit arrangement, your former supplier would still be able to take money from your account.

With the dormancy rule, an inactive direct debit will be cancelled after a certain period to prevent any unauthorised payments.

Risks of the dormancy rule

It’s important to know about the dormancy rule because banks and organisations don’t always tell a customer that they’re cancelling a direct debit. It is officially the responsibility of the organisation you’re paying to inform you that your direct debit will soon be cancelled, but there is evidence that suggests many organisations will simply allow the direct debit rule to expire without notifying the account-holder.

So, while the rule is designed to protect the account holder, it can sometimes do the opposite. If you use multiple credit cards for different payments you might find that you don’t need to use one for over a year. Perhaps you have a direct debit form set up on a rarely used credit card to automatically pay the minimum amount each month. If you don’t use the card in over 13 months, the direct debit rules may be removed from the system. Then, when you do use the card again, you might face late payment and interest fees because you’re unaware that the monthly direct debit payments are no longer being processed.

If you have a credit card you only use sparsely, make sure you check your direct debits and try to reactivate them before they expire.

How long can a direct debit be inactive?

The minimum period of inactivity before a direct debit is removed from the system is generally 13 months, though it has been temporarily extended to 24 months as a result of the COVID-19 pandemic. The pandemic has resulted in more organisations offering payment holidays or deferrals – which might extend beyond the 13-month period of the usual dormancy rule. The extension to 24 months applies to any organisation that usually has a 13-month rule in place.

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