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Direct debit allows automatic payment of bills and purchases through a bank account. The direct debit allowance obligates banks to refund unapproved or incorrect charges and investigate. Companies must sign a contract to accept direct debit payments and follow procedures for resolving compensation claims. Legitimate debts cannot be avoided with direct debit compensation.
The direct debit allowance requires a bank to pay the money back to the bank account holder immediately. A bank refunds money when it receives notice that an unapproved charge has occurred or that an incorrect amount has been withdrawn from an account. For the direct debit allowance to work, the account holder must notify their bank of a debit error. The bank refunds the money to the account and investigates the situation if necessary.
A direct debit allows a person to pay bills automatically through a bank account rather than sending checks to different companies each month. A person is also able to purchase goods and services by direct debit instead of using cash. Many businesses also prefer direct debit payments because it eliminates the need to send invoices to customers, keeping expenses to a minimum. However, problems can arise when a business charges a customer the wrong amount or when a customer cancels a charge approval. The direct debit allowance solves these problems because a bank is obligated to refund the account holder the money immediately and then conduct an investigation.
For example, Henry joins the gym and signs a one-year contract. He gives the gym approval to debit his bank account each month to pay for his membership. Two months later, Henry stops going to the gym and tells his bank to stop any additional payments to the gym. Henry, however, doesn’t tell the gym that he quit, so they continue to debit his bank account.
Eventually, Henry learns that his bank is still automatically paying for the gym with direct debits. He notifies them of the problem and requests an immediate refund. The bank complies with the request due to the direct debit allowance. The bank may require Henry to submit his request in writing. The bank can then get its money back from the gym.
A company can file a complaint to contest the bank’s refund request. He must do so within a certain period or lose this right. Any business that accepts payments by direct debit is required to sign a contract, which obliges the business to follow the procedures for resolving direct debit compensation claims. A company that does not sign up to the agreement cannot accept payments by direct debit. This can hurt a business, because so many people pay by direct debit.
A bank account holder cannot avoid a legitimate debt with direct debit compensation. Although a bank makes an immediate repayment, the account holder can still legally owe the debt. If the bank learns that a customer has authorized a withdrawal, the bank can request its customer to refund the bank. A business may also choose to take legal action against a person who receives goods or services, but has stopped payment wrongfully.
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