How to reverse a Direct Debit payment

Thankfully, payers are really well protected under the Direct Debit Guarantee. The Direct Debit Guarantee covers against error and a failure to follow due process as outlined by the Bacs rules and guidelines. Organisations need to ensure they adhere to these rules, while also understanding their rights in challenging a reversal or refund request from payers.

Here’s a look at when you might want to recall or reverse a Direct Debit, and how to go about it.

Payer Rights

Under the Direct Debit Guarantee, an organisation is required to give its customers advance notice of any changes or reversals to their Direct Debit, such as a change in the payment amount, date or frequency. This is typically 10 working days before the payment is taken, but shorter periods can be agreed and this would be stipulated in the Direct Debit Guarantee on the Direct Debit Instruction you complete.

If the organisation fails to provide this notice, it is in breach of the Direct Debit scheme rules and you are entitled to a full and immediate refund from your bank. It’s worth noting that there are occasions where a payment might not be taken on the exact date stipulated in the advance notice. In this case, companies do have a three day grace period from the date of the original collection.

Making a Claim

If you notice an error on the same day a payment was made, you can call your bank and reverse the payment immediately. However, if you notice it at any point afterwards, your bank will need to make an ‘indemnity claim’ to the collecting organisation on your behalf. This can be done anytime, regardless of whether you still have a Direct Debit with the organisation in dispute.

Finally, remember that you can easily cancel a Direct Debit payment at any time before the payment is due to be made, simply by calling your bank. In the rare occasion where a payment is still taken, you are entitled to a full and immediate refund from your bank.

If you need to reverse a Direct Debit payment, follow these steps:

1. Contact your bank and request a Direct Debit reversal.
2. If the payment has already been processed, initiate an Indemnity Claim under the Direct Debit Guarantee.
3. The bank will refund the amount immediately while investigating the claim.
4. If the claim is valid, the business will need to absorb the loss.
5. If invalid, the business can provide evidence to challenge the claim.  

Service User Process

As a service user, if you have collected a Direct Debit payment incorrectly Bacs have clear rules and guidelines on what you must do. Bacs Scheme rules are specific to whether the error is discovered before the collection file has been submitted or afterwards, and also whether it impacts a single collection or the majority of a file.

Bacs have recently updated their rules and guidance in relation to how a service user should address the majority of a submission file being made in error.