Direct debits: a useful system that can go wrong

DIRECT debits represent a convenient method of paying bills for most users, but when they go wrong they can go very wrong.

The bank and building society organisation that processes direct debits and standing orders, Bacs, is running a multi-million pound campaign over the next few months aimed at clearing up misconceptions about direct debits.

'The key is for people to understand their rights so that they can enjoy the advantages,' said David Sanderson, a Bacs spokesman.

Direct debits are arrangements authorised by bank or building society customers to pay regular bills from their account as they fall due, often by instalment.

The payment is taken from the customer's account automatically by the supplier, which could be a utility or an insurance company. If the payment changes the supplier notifies the customer in advance, putting the onus on the customer to query it if he thinks it is wrong.

Standing orders, on the other hand, are paid out by the bank as a credit and the customer must notify the bank every time the amount is to change.

Insurance payments, magazine subscriptions, poll tax, utility bills, television licences, mortgages and some charge card bills can be paid by direct debit.

The benefits are the convenience of automatic payment over posting cheques or paying with cash. Spreading payments over a period can be particularly helpful for customers on tight budgets.

Yet many people remain suspicious of direct debits, even though they have been in operation for 25 years. Sceptics feel that they give the suppliers unnecessary control over their bank account.

But Bacs says customers are protected in several ways:

Suppliers can collect only the amounts agreed with the customer. If the amount or date changes the supplier must notify the customer 14 days in advance.

Customers can cancel direct debits at any time by contacting the bank or building society. If you wish to query a direct debit, contact the supplier and your bank.

Banks and building societies give customers a money-back guarantee on direct debits. This means that they must give an immediate refund if the wrong amount is taken from your account or money is debited early.

Mistakes are well documented. Users complain of monthly payments being debited weekly, utilities refusing to lower the amount deducted to reflect reduced usage and bank errors that throw them into overdraft.

But many problems stem from clerical errors and are sorted out at no cost to the customer.

Jean Eaglesham, of the Consumers' Association, says: 'They are convenient but one of the areas most prone to mistakes.'

The association advises people to keep careful records of their direct debits, to check their bank statements, and to double-check that cancellations of direct debits have gone through.

Banks, building societies and suppliers are eager for more customers to use the system. Dealing with payments electronically is faster and saves them huge amounts of money compared with handling cheques and cash.

An increasing number of suppliers are giving incentives to customers to set up direct debits. Westminster Council thinks direct debits have lowered its costs so much that it is offering a limited number of free television sets to customers who use them.

Several electricity companies and magazine subscriptions offer reduced bills.

Direct Debit information packs are avilable by calling the Freephone number 0800 545554.