Direct debit

• What they are
• Interested parties
• Strengths and drawbacks
• Expenses
• Underlying rules
• Pitfalls

What they are

SEPA Direct Debit (SDD) is a payment service offered by banks and other payment service providers (PSP) within the Single Euro Payments Area (SEPA). It enables you to make payments automatically, whether on a once-off or recurring basis and on a fixed due date, to businesses or other providers of goods and services (for example, electricity, gas and telephone bills or loan payments).

This service may be used by holders of payment accounts (bank or postal current accounts), or of prepaid cards or credit cards.

To make a SEPA Direct Debit, you have to give the company providing the utility or service (the payee) a payment mandate. On each due date the payee submits its invoice and your payment service provider pays it, debiting the amount from your account, without having to ask for authorization each and every time.

Interested parties

It is a useful service for anyone who has to make recurring payments: you do not have to make payments in person and potential delays are avoided.

Strengths and drawbacks

Using SEPA Direct Debit means that you can avoid being late in making or even missing recurrent payments.

Where a debit is authorized but there are insufficient funds to cover it, the payment may be denied and, in the most serious cases, the contracted service could even be suspended. In other cases, if the contract setting out the terms and conditions for your current account allows it, the payment may nonetheless be made but you may incur fees for establishing a line of credit or for using an overdraft facility.

Expenses

Direct debit fees may be charged per transaction or as an annual fee that includes a certain number of transactions per year.

You should consider the number of transactions that you are likely to make in a year to understand which of the offers proposed by the various PSPs is best suited to your situation.

Underlying rules

SEPA has eliminated differences in domestic and European-level retail payment procedures by establishing common rules for customers in its member states (which include all the EU countries, Iceland, Norway, Liechtenstein, Monaco, San Marino, Switzerland and the British Crown dependencies).

Where the mandate does not specify the amount to be debited, you have eight weeks from the debit date in which to request a refund if the amount exceeds that which could have been reasonably expected based on your previous spending pattern, the terms and conditions of the contract, and the circumstances. In any event, EU legislation provides that customers have 13 months to submit a claim for refund if the payment was unauthorized.

It is a good idea to cancel any authorizations for direct debits that are no longer active but that are still associated with your card or account.

You have the right to cancel a direct debit up to one day before payment is scheduled to be made.

One simple rule is always true: even though the time period in which you can claim a refund is fairly long, it might be difficult to determine whether a transaction is correct after time has passed. For this reason, you should always keep an eye on your account statement and check that the various transactions reported are accurate.

Pitfalls

Excessive optimism: there is the risk that, owing to excessive optimism, you might authorize a direct debit without being certain that you will have the funds available to cover it, perhaps trusting that another expected sum will be credited to your account in the meantime.

Remedy: check your account statement, keeping a close eye on deposits and withdrawals to avoid making decisions based on erroneous assumptions.