Unauthorised direct debits

The TIO regularly receives complaints about unauthorised direct debits. In most cases the TIO will investigate these types of complaints, although resolution is often achieved through referral of the complainant to their bank or the Banking & Financial Services Ombudsman, particularly where the complainant has proof of termination of the contractual relationship with the telecommunications company concerned.

In investigating these types of complaints, the TIO obtains from the complainant evidence to support their position such as copies of bank or credit card statements that show the disputed debits. Depending on the nature of the complaint, the TIO seeks from the provider such evidence as a copy of the direct debit authority, terms and conditions of the service and direct debit agreement, and/or an account reconciliation.

Where the available evidence indicates a customer's account has been incorrectly debited, the TIO will expect the provider to credit back the disputed charges unless it can demonstrate that such action has been, or will be, taken by the bank.

In the past, the TIO has investigated complaints about telecommunications companies repeatedly direct debiting a customer's account after the original direct debit attempt has failed - sometimes more than fifty times. In some cases, the provider has reduced the value of the request to an amount less than the outstanding account and thereby had the transaction approved by the customer's bank.

The TIO takes the view that once an initial direct debit fails, the account falls into credit management. The TIO will investigate complaints about repeated direct debit attempts and will consider whether the provider has complied with Clause 7.4.3 of the Telecommunications Consumer Protections Code, which requires a provider - 'prior to taking Credit Management action, or at the appropriate time' - to advise its customer 'of the general nature and effect of the time a Customer has to pay for Services and their obligation to pay by the due date,' and 'any processes the Supplier has for follow up of overdue accounts and assisting Customers who are experiencing difficulties in paying their accounts.'

While the TIO believes that a provider should contact a customer directly before making further direct debit attempts, the question arises as to what 'prior to taking Credit Management action, or at the appropriate time' actually means. The TIO may be willing to accept a situation where a member makes its credit management policy and practices clear at the point of sale such that the customer can easily access, understand and refer back to this information if necessary. Ultimately, however, the TIO will consider compliance with the code, and what constitutes a fair and reasonable outcome, on a case-by-case basis.

Updated: 12 May 2008