Cancelling a direct debit on a statement account

Key Message:

  • You can cancel a direct debit from your bank account (not a credit card);
  • Get advice about the consequences of not paying a debt before you stop payments.

What is a direct debit?

A direct debit is an automatic payment transferred from your bank account (not a credit card) to pay a bill or debt.

When you set up your direct debit, you would have signed a Direct Debit Request authority with the business or company (trader) that you agreed to pay money to.

Can I cancel a direct debit?

YES. You can cancel a direct debit on a statement account (sometimes called a transaction or saving account)  at any time, for whatever reason, by contacting your bank or the trader.

Different rules apply for credit cards.

Most banks are bound by the Code of Banking Practice which states that a Bank ‘will take and promptly process your instruction to cancel a direct debit request relevant to a banking service we provide to you’.  Credit unions and mutual building societies have similar obligations under the Customer Owned Banking Code of Practice. The Australian Payments Clearing Association’s direct debit system rules also places obligations on financial institutions in relation to processing and cancelling a direct debit.

The terms and conditions which apply to your banking service will also set out your bank’s obligations in relation to cancelling a direct debit.

Does cancelling a direct debit have consequences?

Cancelling a direct debit may have consequences.  Some contracts require payment by direct debit, meaning that if you cancel the direct debt you may breach the contract or be required to pay more.  Stopping payments under a contract without lawful grounds may result in a debt being owed to the trader.  You should seek legal advice from Consumer Action’s public advice line if you are unsure about the consequences of cancelling a direct debit or stopping payment of a debt.

How do I cancel a direct debit?

Step 1: Tell your bank that you want to cancel the direct debit.  You could do this by telephone, internet, in writing or in a branch.  Below is a sample letter to send to the bank.

Step 2: Tell the trader that the direct debit has been cancelled.

Step 3: Check with your bank a few days later and check your statements to make sure the direct debit has been cancelled.

Some banks might put restrictions on how they want you to give an instruction to cancel a direct debit (e.g. by filling out a special form in a branch).  If the bank is making it too hard for you, seek advice about whether it is breaching its obligations.

Sample letter cancelling a direct debit

If you’d like to see a sample letter to a bank cancelling a direct debit arrangement click: letter cancelling direct debit.

What if the bank tells me that it can’t cancel a direct debit?

The bank cannot lawfully refuse your request for cancellation on a statement account (sometimes called a savings or transaction account).

If a bank worker refuses to cancel a direct debit, tell them that, under clause 21.1 of the Code of Banking Practice, a bank must ‘promptly process your instruction to cancel a direct debit request relevant to a banking service we provide to you’.

Don’t be surprised if you have to do this.  A 2012 study indicated that only a third of consumers were receiving fully correct information from bank staff when they asked to cancel their direct debit (Code Compliance Monitoring Committee, Direct Debits Inquiry Follow Up Report, 2012).

If your bank or financial institution fails to cancel the direct debit according to your instructions, or money is taken from your account, you can attempt to claim this amount back.

If you experience any problems you can:

  1. make a complaint to your bank’s Internal Dispute Resolution team;
  2. if your dispute is not resolved, make a complaint to the Financial Ombudsman Service or Credit and Investment Ombudsman Service;
  3. seek advice from Consumer Action’s public advice line.

Further information

Financial Ombudsman Service
Tel: 1800 367 287
http://fos.org.au/centric/home_page.jsp

National Debt Helpline
Telephone: 1800 007 007
www.ndh.org.au

Australian Payments Clearing Association

http://www.apca.com.au/

Warning: This fact sheet is intended as a guide to the law and should not be used as a substitute for legal advice.  This information applies only in Victoria and reflects the law as at 6 June 2017.

Image from Nicolas Raymond.


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