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Direct Debit indemnity claims
What is an indemnity claim?
To quote the official Bacs explanation, an indemnity claim is ‘A request by a paying PSP against a service user where payers have sought refunds under the Direct Debit Guarantee.’ Under the Direct Debit Scheme Rules, paying banks and building societies are required to refund the full amount of the Direct Debit back to the payer in the event of an error during Direct Debit collection. Errors can occur in many different instances. This article will outline some of the main reasons Direct Debit indemnity claims are raised and how they can be avoided both as a service user and a payer.
The Direct Debit Guarantee enables the payer to request a full and immediate refund from the paying bank or building society at any time, as it is unlimited in time and amount. A Direct Debit Indemnity claim must be submitted for the full amount of the original payment, and there is no claim time limit. Should the claim be deemed legitimate, then under the Direct Debit Guarantee, the bank will be required to refund the payer. The Direct Debit Guarantee is actually the thing that instils confidence in using direct debit as a payment method.
Suppose you are a payer, and after reading this article, you feel that you need to request a refund under the Direct Debit Guarantee. In that case, we always recommend that you speak to the organisation that collected the Direct Debit in the first instance before exploring a Direct Debit Indemnity claim. Most issues can be resolved without going down the indemnity claim route, and they will then be able to advise you on what to do next and potentially arrange a refund if there has been an error with the Direct Debit. Direct Debit Indemnity claims should always be the last resort.
For service users and Facilities Management clients
Some of the reasons for Indemnity claims
There are two main reasons or issues that would bring about a Direct Debit indemnity claim. They would include the following:
- Circumstances where there are issues with the advance notice
- No valid authority in place, including where the wrong customer has been debited. The reason codes used by banks and building societies can be found in the Guide & Rules and on the indemnity claim advice report.
How do I counterclaim?
We recommend that you legally retain all relevant information and correspondence for each client in case a direct debit indemnity claim is made. This will enable you to provide sufficient evidence should the client feel there has been an error with Direct Debit. Once you have gathered this evidence, contact your bank and they will take this forward with you.
How to minimise indemnity claims
Although some Direct Debit indemnity claims may be unavoidable and cannot be challenged, there are ways to minimise the number of claims you receive. Interbacs recommend that you follow these simple steps:
Always ensure that the customer can contact you easily
It will only fuel the fire if customers cannot contact you. We say this so any issues can be discussed and resolved without the need for an indemnity claim to arise. All contact details for the business need to be kept up to date so that customers always have the most accurate details, should they need to contact you. All email addresses and phone lines should be manned during opening hours, and contact details on the website should be kept up to date so that the customer can try and get a resolution.
Have your evidence to hand
In the event of a direct debit indemnity claim that was received incorrectly, and you feel the need to challenge or counterclaim it, then you need to be sure that you have got the correct information ready. The more you can provide, the better.
What evidence do I need?
It is recommended that all correspondence with the client is recorded. So any letters, phone calls, contracts etc., are all kept on record, so you can easily find out if an actual error has occurred or if the client is just mistaken.
We always recommend that you try to have the following:
- Evidence of a contract signed by the payer specifically referencing payment by Direct Debit
- Evidence of authorisation if paperless:
- Phone Recordings if signed up over the phone
- Web data if signed up online
- Evidence of a contract explicitly referencing payment by Direct Debit – The agreement need not be signed if the payer is disputing the payment method and not the existence of the contract.
- Evidence that advance notice was sent detailing what will appear on the customer’s bank or building society statement, the date of the Direct Debit, and the payment schedule. Customers that don’t receive an advance notice are more likely to file an indemnity claim.
There are many different forms of evidence that are required for various claim reasons. If you want to try and challenge or counterclaim an indemnity, we recommend that you speak to your account manager. They will be best placed to advise you.
Be careful not to double refund
There may be the instance where your business offers a refund, and the customer is unsure who the money is coming from and then seeks a refund from their bank or building society, which in turn raises an indemnity claim. So always make sure that the client is clear that they do not need to do anything if you as a business are offering the refund.
For further information about this article, or if you would just like some advice from your account managers about what else you can do to minimise Indemnity claims, please don’t hesitate to contact us.