Direct debit authorities

The TIO sometimes receives complaints about cancellation of direct debit authorities.

Where the direct debit authority is for a statement account, the TIO takes the view that a service provider may not be able to enforce a condition in a contract for services with its customer which requires the customer to cancel their direct debit authority by notice to the provider. This is because the contract for the direct debit authority is ultimately between a customer and their financial institution, rather than between the customer and the third party service provider.

A service provider would be entitled to rely on a contractual term requiring a customer to notify the provider that the customer was cancelling the direct debit authority with their financial institution. On this point, the TIO takes the view that it would not be reasonable for a service provider to require written notice from a customer that they had cancelled a direct debit authority if that direct debit authority was negotiated orally in the first place.

Differences may apply if the direct debit authority is for a credit card account. Further information about cancelling direct debit authorities is available on the website of the Banking & Financial Services Ombudsman here.

Posted: February 2005