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Direct debit rules: What you need to know

You have likely heard of direct debits, they are a very easy and simple way to make recurring payments.This guide will let you know what direct debits are, if they are right for you and the protection you get from them

What are direct debits?

Direct debits are instructions you give to someone to collect money from your bank a particular due date every month. You give this instruction to your bank by filling a direct debit mandate form online or on paper and submitting this to your bank. In most cases the entity you are paying will submit this on your behalf.

You will need details such as:

  • your name
  • your account number
  • your sort code
  • the amount
  • your bank address
  • your home address
  • and a signature(or e-signature).

You cannot set up a direct debit by simply calling your bank.

Direct debits can be used for many things including:

  • Subscription payments
  • Spreading the cost of a purchase
  • Variable payments such as council tax or utility bills

Direct debits can also be used for one off payments and indeed are used for this often.

Direct debits are a great way to pay as:

  • Companies give you discounts for paying with direct debits
  • You never miss a payment as you don't have to remember to pay
  • They are convenient and easy to set up
  • They are free

To cancel your direct debit simply contact your bank and inform them. You may also which to inform the company which was collecting the payment.

There are two main rules that cover direct debits:

  • The direct debit guarantee: This entitles you to an immediate refund for any payment which was taken in error. All firms using the direct debit system must sign up to the direct debit guarantee.You should be provided with a copy of the direct debit guarantee whenever you set up a direct debit.

  • Advanced notice: This states that you should be notified in advance of any direct debit payments, the amount and date of each payment in advance.

What happens if you move banks?

If you move banks you will be covered by the account switch guarantee. This means any fees, charges or interests incurred due to switching will be refunded to you. The current account switch service moves over all your direct debits, standing orders etc to your new bank account.

The difference between direct debits and standing orders?

People often mistake direct debits for standing orders and vice versa. Here are the differences

What? Direct debit Standing order
What is it? An instruction for a person or business to collect money(usually predetermined amount) from your account on a pre-arranged date. An instruction to your bank to make regular payments to a person or business.
How is it set up? You fill a direct debit mandate and that's it You inform your bank who to pay, how much and how many times.
Legal protection None You can get immediate refunds if there are any errors

Standing orders are good if you want control over the payments that leave your account. They are not flexible as they cannot take variable payments.. Direct debits are good if you want flexibility, ease of mind and convenience.

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Direct debit rules: What you need to know
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