Direct Debit

Definition of 'Direct Debit'

A direct debit is an authority (or more correctly, a 'mandate') given by you to a company to enable it to take monies automatically from your bank account at agreed periods.

Direct debit is an easy way to pay regular bills and can help ensure that you do not end up with a late payment appearing on your credit report.

It is one of several electronic methods of payment which currently make up over 10% of all payments in Australia.

The most frequently used reasons for using direct debit is for ongoing payments such as credit card minimum payments, loan instalments, mortgage repayments, insurance premiums and utility bills.

The direct debit can be set up to pay a fixed amount at a regular interval (such as a loan repayment), or for variable amounts (such as mobile phone bills).

The Australian Payments Clearing Association’s (APCA) direct debit system rules and banking practice codes place strict obligations on companies who take payments by direct debit.

In particular, it must act on your initial direct debit request – called a ‘DDR’ – when you set up the arrangement. If you ask your bank to stop a direct debit payment, amend or cancel a DDR, or dispute a transaction, it must act on your request.

It cannot refuse to accept your instructions or direct you to the party receiving the monies via direct debit. The exception to this is where service fees apply, under the direct debit system rules your bank might recommend that contacting the biller is the best course of action.

Importantly, your bank must always act on your requests promptly and, in the case of cancellation requests, ensure, as far as practicable, that no further direct debits are made to your account once the DDR is cancelled.

If you dispute a direct debit payment, your bank must contact the biller’s financial institution. The biller must provide proof that you have given permission for money to be taken straight out of your account. Otherwise, a full refund will be made to your account.

Because of these safeguards, direct debit is a safe and reliable way to pay regular commitments.

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