Your rights when setting up, changing or cancelling a direct debit or automatic payment.
A direct debit is a regular payment that's approved by you but set up and controlled by the business you are paying. The amount can change with each payment.
An automatic payment is a regular payment that's set up and controlled by you. You pay the same amount every time.
Direct debits
How direct debits work
With a direct debit, you give someone else approval to take payments from your bank account electronically. Because you don't have to do anything, a direct debit reduces your chances of missing a payment.
A direct debit can be for the same amount each time, eg a gym membership, or the amount can change with each payment, eg a power or phone bill.
You need to:
- give approval for the direct debit to be set up
- let the business know if your bank account details change
- make sure you have enough money in your account for each payment.
Quick guide: Direct debits(external link) — Banking Ombudsman
Setting up and cancelling direct debits(external link) — New Zealand Bankers Association
Your rights
The business you are paying must let you know in advance the amount and date the payment will occur.
A direct debit is organised with your bank. The bank needs a signed authorisation from you to set up a direct debit.
The bank must act on your instructions if you ask them to cancel or change the direct debit. You don't need approval from the business you are paying to cancel a direct debit, but you should let them know. You still have to pay any money you owe another way.
If there is not enough money in your account to make a payment, the bank can:
- make the payment anyway and charge you overdraft fees or interest
- dishonour the payment — you will have to organise payment separately, and you might be charged a dishonour fee by the bank.
If things go wrong
If you lose money because your bank didn't cancel a direct debit authority when you asked them to, you might be entitled to compensation. This could include a refund for overdraft fees or penalty interest. Or it might be to credit funds debited without authority, unless you benefited in some way from the payment, eg your electricity bill was paid even though the direct debit was unauthorised.
If you can't resolve it with your bank, look into making a complaint to the Banking Ombudsman.
Make a complaint(external link) — Banking Ombudsman
Example — Gym fees
Tom has a direct debit for his gym membership. He cancels the gym membership after two years and asks his bank to cancel the direct debit. He checks his bank statement and notices he is still being charged two months later. He contacts the bank again and complains. The bank agrees to reimburse him for the two months of payments and to stop the direct debit immediately.
Automatic payments
An automatic payment is a regular payment that is set up and controlled by you. The payment is always the same amount.
How automatic payments works
You can usually set up an automatic payment yourself in your online banking. You can choose the amount of the payment and when you want it to be made, eg if you get paid on alternate Wednesdays, you might set up payments to go out every second Thursday so you know you will have money in your account.
You can set an end date for an automatic payment or have it repeat indefinitely until you cancel it.
Your rights
If you don't have enough money in your account, automatic payments usually won't be paid. The bank might try a few times to make the payment. They can charge you a penalty fee if the payment can't be made — check their terms and conditions.
Talk to your bank if you don’t think these are fair.
Unfair fees
The bank can only set up an automatic payment on your behalf if they receive a form that has been signed by you or by someone who has authority to sign on your behalf with the bank.
You can change or cancel an automatic payment at any time.
FAQs
Source of funds: Direct Debit is pulled from a bank account, while recurring card payments are charged to the credit or debit card account. Payment timing: Recurring card payments offer immediate or next-day clearance, while Direct Debit may take several business days to clear.
What is the difference between Direct Debit and automatic payment? ›
A direct debit is a regular payment that's approved by you but set up and controlled by the business you are paying. The amount can change with each payment. An automatic payment is a regular payment that's set up and controlled by you. You pay the same amount every time.
What is the difference between direct pay and autopay? ›
Automatic payments are typically set up via online banking, and you'll need to manually change the payment amount yourself from year to year. Direct debits are different from automatic payments as they are set up with your bank by Bay of Plenty Regional Council after you have agreed to the payment plan.
When should you not use Direct Debit? ›
Direct Debit: not for instant, high risk or high value transactions.
Do Direct Debits payments change automatically? ›
With a Direct Debit, you give businesses permission to automatically collect bill payments at set times. They're then taken from your account on specific dates. Direct Debit payments can stay the same if your bill is for a fixed amount. Think of a streaming subscription or monthly phone contract.
What are the disadvantages of Direct Debit? ›
While overall, this payment method is safe, secure, and convenient, there are potential disadvantages of Direct Debit to be aware of. You can be charged overdraft or late fees: If there are insufficient funds in the buyer's account, the Direct Debit might still go through with overdraft protection.
Are direct debits a good idea? ›
Direct debits are handy for paying regular bills, such as your monthly phone bill or gym membership. Automatic payment means you don't have to remember to pay the bill, and you don't risk any late fees. However, direct debits can become a problem if: You don't have enough money in your account.
What is the disadvantage of AutoPay? ›
Cons of Automatic Payments
Your biller could accidentally withdraw the wrong amount or double-charge you. It could even fail to withdraw the money at all. Sometimes, companies continue to withdraw money even after you've canceled services.
Is auto pay Direct Debit? ›
Autopay Online Plus is a cloud-based payment solution that enables you to collect Direct Debit payments and make Direct Credit payments (volume-based sterling transactions between UK bank accounts). Autopay Online Plus is an Indirect Bacs solution.
Is it better to pay by Direct Debit? ›
Direct Debit works around you, enabling you to plan your outgoings. Lots of organisations offer you a choice of when you want to pay each month, so you'll know what date the payment will be taken, fitting it around things, like your salary coming in.
Despite there being many advantages of Direct Debits, they do come with some downsides. One major disadvantage of Direct Debit is the time it takes to get paid for the first time. Payments work in set cycles, so you might have to wait to receive the initial payment. Failure of payment is also a possible disadvantage.
Why do people use Direct Debit? ›
A Direct Debit lets your bank or building society know that businesses and services can take money from your account on a set date. People use Direct Debits to pay monthly bills and make one-off payments.
What is the difference between a recurring payment and a Direct Debit? ›
Source of funds: Direct Debit is pulled from a bank account, while recurring card payments are charged to the credit or debit card account. Payment timing: Recurring card payments offer immediate or next-day clearance, while Direct Debit may take several business days to clear.
What are the most common Direct Debits? ›
Direct Debits.
This is usually on a set date and for a fixed amount, though the amount can vary. Common Direct Debits include bills such as energy, council tax and broadband, plus you'll likely pay your mortgage, loans and credit card bills with one too.
Can I cancel a Direct Debit without telling the company? ›
However, if you do not inform the company receiving the funds of the cancellation, depending on the terms of service that you agreed to, you may be liable for a cancellation fee or to pay for the time elapsed between when you cancelled the Direct Debit and when the company closed your account or stopped making the ...
Who controls Direct Debit payments? ›
Who actually controls Direct Debit payments? You do. As the account holder, you can cancel any time you want, just as you can set up a Direct Debit Instruction. Outside of that, your bank or building society is responsible for running your account, including all payments, such as Direct Debit.
What is considered a Direct Debit payment? ›
Direct debits allow businesses to collect the amount from the customer's bank account on the payment due date. This requires a mandate, also referred to as the SEPA Direct Debit mandate, which represents the customer's written consent for the amounts to be debited from the account.
What does automatic payment mean? ›
Automatic payments (also referred to as automatic bill payments) are payments that a merchant automatically withdraws from a customer's bank or credit union account. An automatic payment arrangement is often used to pay bills—for example, a monthly credit card bill.
