Many New Zealanders use direct debit arrangements to make purchases, pay bills on a regular or recurring basis and as an alternative payment method to cash.
The processes involved in setting up and cancelling direct debits are different depending on if it is from your deposit account or credit or debit card.
A direct debit is an amount of money you authorise a merchant, such as a retailer or a service provider, to deduct money from your deposit account or credit or debit card, to pay for goods or services.
A direct debit is a convenient, safe and reliable payment method. Your ability to set up or cancel a direct debit will involve interaction with the merchant, not just your bank.
You can set up a direct debit on either a deposit account or credit card. A direct debit on your deposit account automatically deducts payments from the money in the account you have with a bank. A direct debit on your credit card takes money off your card. The processes for each are different.
Why set up a direct debit?
- For regular or recurring bills it saves you having to pay each time meaning you won’t inadvertently miss a payment.
- You can take advantage of interest-free days when you use a credit card.
- You can better manage your spending and budget by having all your direct debits deducted from a single account.
- If you don’t pay attention to your other expenses, you could go over your credit limit or overdraw your account, and you might find it difficult to manage your financial commitments.
- If you exceed your credit limit or overdraw your account, your direct debit might be refused. If this happens, you may have to pay additional fees or interest to your bank or card issuer. If the payment is delayed or missed because of insufficient funds, you may also have to pay fees or interest to the merchant.
- Resolving disputes or problems with bills could be complicated because the money has already been deducted from your account or the payment processed.
Setting up a direct debit
- Be clear about the amount to be debited, when the debit will occur, and how long the arrangement will be in place.
- Provide the merchant with your bank account details.
Credit and debit cards
- Provide the merchant with your card number and expiry date and, if required, the security code.
Tip: In almost all cases you will need only one direct debit per purchase. Talk to your bank if the retailer insists on multiple direct debits. Make sure you receive written confirmation the direct debit has been set up.
Did you know? Cancelling a direct debit with the merchant may not end your obligations if there is an outstanding amount owing or you’ve entered an agreement or contract that is still valid.
Even if you cancel the direct debit, you’re still legally bound to pay the merchant for the goods and services already provided to you (or which are to be provided to you), as part of your agreement or contract, unless you’re also cancelling your agreement or contract with the merchant.
Cancelling a direct debit
- Make sure you don’t owe the merchant any money. Pay the amount owing or set up an alternative payment arrangement
- Contact your bank: They will process your cancellation request on your behalf.
Credit and debit cards
- Contact the merchant: Provide clear instructions to the merchant to stop the direct debit arrangement. If you have difficulty, contact your bank for advice.
What if the direct debit isn’t cancelled?
If a direct debit arrangement isn’t cancelled, despite your request, and another amount is deducted from your account or card, contact your bank immediately.
If the direct debit transaction is unauthorised, the merchant should return the amount to you after your bank has completed a dispute investigation – this is called a ‘chargeback’. If you believe your bank hasn’t resolved the matter appropriately, contact it again.
If you’re still not satisfied with your bank’s response, you can make a complaint to the Banking Ombudsman. Call: 0800 805 950 or email email@example.com
Sample letter/email: Cancelling a direct debit on a credit or debit card
15 Stout Street
Palmerston North 4060
16 Queen Street
Re: Cancelling direct debit for A Customer, customer reference number #0987654321
With immediate effect, please stop deducting money from my credit [or debit] card account. My account details are provided below.
Credit card/debit card
Financial institution: ABC Bank
Cardholder name: A Customer
Card type: MasterCard
Card number: 9898 7432 1200 0236
Expiry date: 09/18
Please ensure you update your records to reflect this change as soon as possible. If you have any questions about this request, please do not hesitate to contact me on (021) 725 000.
Thank you for your assistance.