A Direct Debit Instruction is an authority allowing an originator to collect money from your bank account. There are rules they have to follow for this.
The main one is that they give you at least the agreed notice (normally 10 working days) that they will collect, specifying an amount and a date, and then they have to collect that amount on that date. They are allowed up to three days late, but not allowed to collect early or a different amount. They are not really complicated rules.
Annoyingly some people get this wrong, and the banks offer their customers a guarantee. The wording of this guarantee has changed a few times and there are a couple of key points on the latest wording which I found interesting.
The first point is that the new wording now says "If an error is made in the payment of your Direct Debit" rather than "If an error is made". The error still has to be made by the originator or the bank, but the new wording is much more specific. This is good, as previously one could reasonably argue that invoicing the wrong amount, or even making an error in providing some service, was "an error ... by the originator ... " and so a reason to claim on the guarantee. The new wording is narrower and relates only to an error made with collecting the Direct Debit. I am sure this is what they always meant, but new wording is clearer, good.
The other change is subtle too, it adds "If you receive a refund you are not entitled to, you must pay it back when [originator] asks you to.". We'll ignore the fact that it should be "... to which you are not entitled ..." for now. This made me wonder - have people made bogus claims and refused to repay them? Maybe.
But this led me to ponder the whole basis for claims under the Direct Debit guarantee.
Let's suppose someone collects money from me under a Direct Debit, but did not give the correct notice. Something simple and provably wrong. I have had this lots of times, and even had a letter from someone that was dated later than 10 days notice with "This is your 10 working days notice of collection" on it. So, within the one letter, it was clearly wrong. This is a valid reason to claim on the Direct Debit guarantee.
So, you claim from you bank. This is a claim on a guarantee your bank offers you. It is part of an agreement between you and your bank. They pay up (the refund). Good, but this is entirely a matter between you and your bank.
Then, the bank are out of pocket here. But they have an indemnity policy (an insurance policy) with the originator. This is part of becoming a Direct Debit originator - you have to indemnify all of the banks against any losses they have. The originator is insuring the banks. So the bank claim on that, and the originator pay the bank. This is a matter between the bank and the originator.
All good. But what has someone paying out on insurance go to do with me, as the person that claimed on a bank guarantee. I would have complied with the contract with the originator and paid by DD. This is not a "reverse the DD payment, reclaim the DD payment, or reject the DD payment", it is a "claim from the bank on a guarantee the bank gave me". The fact that the originator is out of pocket is down to them providing an insurance policy to the banks. Insurers always risk being out of pocket. How is that my problem? I am not even the one that created the insured event, it was the originator themselves making a mistake that did so. It is the bank that refunded me, not the originator.
So, technically, do you owe the originator the money back?
The new clause on the Direct Debit guarantee does not cover this, as it only covers cases where you claim but are not entitled to claim. In this example, you are entitled to claim as there was a mistake.
So legally, can the originator actually ask for the money again?
Just a thought.
Where this gets really interesting is when a supplier goes bust, is wound up and no longer exists. You can still claim against the bank on DD guarantee (if you have a valid claim, i.e. a mistake was made in the collection). The fact that the bank cannot claim against the now defunct originator is not your problem as the bank still exist and they still provide that guarantee.
[Before you ask, A&A have this sown up in the contract terms and make it clear that such a claim against the bank is counted and un-doing the original payment and as such the money is again owed, but I am not sure every DD originator has this spelled out in their contracts.]
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