Bank Charges And Cancelling Direct Debits If The Money Is Not Available
While we all await the result of the appeal by the banks to the House Of Lords over the bank penalty charges case charges continue to be applied. For many people these charges make a huge hole in their financial budgeting and avoiding the additional costs of bank charges can be crucial.
Direct debit payments make life much easier and simplify the task of regular bill paying but they have a sting in their tail if you are running close to your agreed overdraft limit. An attempted payment of a direct debit can leave you out of pocket and still have the debt to pay. An example would be that we have a credit card that requires a direct debit payment of £50.00.
Unfortunately, for whatever reason, there is not £50 available to be withdrawn from your bank account. The direct debit is requested. The bank makes the payment but then discovers that the money wasn’t there and reverses the payment. The net result is that the payment has not been made but the bank will apply a penalty charge of £35.00 for attempted withdrawal when funds were not available.
The credit card company will charge you £12.00 for failing to make a payment and if you were near your credit limit on the card they might charge you a further £12 for going over your credit limit as a result of the payment not being made. So, for a bill that has not been paid you have been charged £35+£12+£12=£59.00 for nothing. You still have to make the payment of £50 to the credit card on top of all these charges and the final cost of paying £50 off your credit card will be £109.00.
There are a couple of lessons to be learned here. One is always keep enough in your current account to cover all your expected direct debits but the other lesson is that if you are sure a direct debit is going to fail then cancel it before it goes through. Make other arrangements to pay the debt but avoid the direct debit failing because that just costs you money for no gain whatsoever, except by your bank and the credit card company. I think it is a reasonable assumption that you need the money more than they do.
The final lesson is simple. The credit card company is not your friend. They are interested in you ONLY for the profit they can make from you. Work towards reducing your debts so you are in control of your life and your money, not them.
Related posts:
- First Direct May Introduce Monthly Bank Charges
- Some Bank Charges Reduced
- OFT Abandons Legal Challenge Over Bank Penalty Charges
- OFT Can Take The Question Of Bank Charges To Court
- How Do Banks Lose Money When They Profit Every Time Money Changes Hands?
Tagged with: avoid penalty on direct debits • cancel direct debit to avoid penalty charge
Filed under: bank charges • Banking • Budgeting
Like this post? Subscribe to my RSS feed and get loads more!
Most companies now require payments by direct debits – so not using direct debit may deny one certain services or you may be required to borrow and pay upfront. Take mobile phones for example, you will either set up direct debit payments for your contract or pay upfront for the phone and choose the paygo tariff which are never good deals.
The best way for the consumer is to enjoy the benefits and convenience of paying and try to avoid the penalties. The bigger problem with direct debits is not remembering. If people remembered their direct debit outgoing dates they will do everything in their power to meet the commitment. In this respect there is a service that can help. You can check out http://www.directdebitalerts.com, they offer SMS reminder service to help users remember all their direct debit outgoings. You will enter all the outgoing dates, and schedule the system to send you an SMS reminder 1 or 2 days before the payment date. The good thing is that you get to choose the actual day and time of the alert – once you are reminded, then it is easier to get make sure there is enough fund to cover the payments, even if you have to borrow
I’ve been reading on this forum and elsewhere many accounts by people having problems with & cancelling Direct Debits. I have always had a great interest in money mechanics and payment systems and I have always strongly advised people to avoid payments using this method. I am convinced people are thoroughly misled and falsely reassured (by eg The Banks ‘Direct Debit guarantee’- here in the UK) about what these things really are, a belief that customers’ banks carry out proper checks when requested electronically by a payee company’s bank to set them up and another belief that their bank can cancel them easily. But its all based on false, complacent & comfortable assumptions. (As also is what money itself really is and how it comes into existense- which I will bring up elsewhere on this forum). I will try to explain.
People just don’t think about the dangers of Direct Debit- just Internet search to easily find out about the huge amount of people that have had problems, companys taking too much, the wrong time etc, saying they will stop taking regular payments and then not doing so; making you go overdrawn and into fees (£30+ in eg the UK for every bounced DD) + interest etc. I contend that the DD guarantee IS worthless, if you complain to your bank here in the UK they almost invariably tell you to take it up with the company issuing the DD. Or if the bank even DOES (after much begging) get the money restored for you, did you know that the company can simply REINSTATE the DD amount and you’ll have to go to your bank to get it reversed AGAIN. Banks have even admitted to distressed customers “DD originators have every right to reinstate DD amounts if they believe they have an outstanding unpaid debt”! (And there was me thinking the money in my account was mine and what gets paid out is under my control- that really is no longer true once you sign a DD mandate!). Another astounding thing is that once anyone has got your sort code & AC number they can (here in the UK & I believe elsewhere too) put it on eg any charity donation newspaper form and set up a DD- the bank doesn’t check the signature or anything at all once the details are transmitted electronically to them by the charity’s bank. (I learned this from someone who used to write DD software for banks). If you don’t believe me please check out this very telling article http://news.bbc.co.uk/1/hi/7174760.stm The direct debit request and payment is entirely automatic once you’ve handed over your account details to the payee company & its been keyed in at the payee’s bank- from then on its just banks’ computers talking to each other via the interbanks BACS payment system here in the UK- no human being checks that you’ve been properly notified by the company requesting the money or even that the signature on the original DD mandate you signed was correct to their records. Even the £30+ penalty for bouncing a DD for insufficient ‘funds’ is automatically applied! That’s how wide open the system is that the all powerful commercial banks have unleished on us permitted by our supplicant and negligent governments. The onus is on YOU to notice the payment you didn’t authorise!
Moral of the story in my opinion: Don’t EVER give your AC details on DD mandates to ANY company you need to pay, use standing orders (which YOU have total control over) to pay them or telephone banking (where you ring your bank every time you get a bill) to transfer the money, or pay by cheque the bill at your bank branch or at a Post Office (no charge in eg the UK) or by post. Carefully guard your AC numbers and watch your statements like a hawk every month.
One final point how do I manage to avoid DD (where I live in the UK) without being penalised at ALL? Answer: 1) My UK gas & elec ACs are with Scottish & Southern energy EQUIPOWER tariff which charges everyone the same low tariff HOWEVER they pay. 2) My landline phone- I ditched BT as soon as they started heavily penalising non DD payers and changed to Post Office Homephone exactly the same service, copper telephone line & BT exchange equipment & IN ALL ASPECTS (line rental & free periods) CHEAPER than BT retail & no extra charge at all for paying by cheque at any post office- EVERY bill. 3) Council Tax & Inland Revenue charge nothing extra for paying by cheque either at your bank, the PO or by post. 4) I don’t bother with Gym membership- I just WALK a lot!, 4) My mobile phone is Pay as You Go where I buy £10 max credit each time at a supermarket, pay at the checkout & just key in the voucher details to my phone 5) I take the risk and don’t bother with AA or home insurance as I am an engineer and able to forecast and carry out all my own home repairs and build in stiff burglary prevention measures, locks alarms etc. But I am very confident it would be possible to find a home insurer that doesn’t charge non direct debit payers more. 6) My credit card statement comes to my home by post and I simply then pay it every month by cheque at my bank or my credit card provider’s bank branch. It usually takes 5 minutes max to do this, I can of course do it at any branch. Or I could do it by telephone banking and FREE for me to to call in evenings or at weekends. The monthly credit card statement has NEVER- in 25 years- failed to come to me by post from several credit card providers I have changed between over the years. And I watch out for and would chase it anyway- its easy to get into the habit. Or use a diary reminder.
Please: Stop doing what you’re told people- think about the possible downsides later when the commercial companies (and banks- stiff £30+ penalties they can now levy if you misclculate) suggest to you ways of doing things that benefit them. Telling you the upsides but not the less obvious serious downsides.