Hard line on direct debit: What goes up does not always come down. Paul Gosling investigates

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The Independent Online
PAYING regular bills by direct debit appears to be a simple and attractive device. About 25 million people use at least one direct debit, and more than a billion were processed last year - five times the number a decade ago.

Direct debits are strongly promoted by utility companies, supposedly to enable customers to improve their financial planning.

A Leicester man, Tony Palmer, found the opposite, however. His direct debit payments to BT went out of control, with a mounting credit balance.

Mr Palmer had authorised pounds 45 to be deducted each month by BT, reflecting his family's customary use of the phone. When his daughter visited Russia, the phone use increased - and so did the direct debit, to pounds 75 monthly. On her return last year, the calls declined but the direct debits remained the same, leading to credit balances of pounds 34.52 in March, pounds 89.32 in June, and pounds 155.84 by last September.

Mr Palmer believed, mistakenly, that as direct debits are controlled by the recipient, BT would reduce the amount once it became clear that the payments were too high, as it had when these were too low. He wrote to the company saying he wanted the monthly payment reduced to pounds 40 to clear the credit balance. BT proposed instead pounds 50 a month. Mr Palmer declined, and cancelled the arrangement.

'At one time my phone bills were constant. Then my daughter went to Russia and they upped the direct debit,' he said. 'When she came back, the use dropped off, but they didn't reduce the direct debit.

'They are supposed to respond to fluctuating demand. If they are doing that to everyone, they are carrying a lot of other people's money, earning interest.'

BT said that it would not make sense to be constantly altering direct debits when customers went into credit or debit by small amounts. 'BT has a policy of not contacting direct debit payers, plus or minus, until the balance reaches three and a half times their monthly payments. We don't want to bother people the whole time,' a spokesman said.

Not all the utilities use the direct debit system. Some electricity supply companies instead encourage payment by standing order, though these can also cause disputes over what is a reasonable monthly amount.

The electricity consumer watchdog, Offer, is at present reviewing the discounts offered by some regional companies as an encouragement to pay by direct debit.

A spokeswoman said: 'We are happy for them to be offered as part of a package of alternative payment options. We do not want customers to be forced to use them, with the caveat for late or bad payers that it is a better alternative to being cut off, if in serious default.'

It is easy to see the attraction of direct debits to large organisations, for whom chasing comparatively small debts is a big problem. BT does not offer an inducement to switch to payment by direct debit, saying the arrangement is provided as a service to customers and used by 1.9 million of its 26 million domestic users. Other organisations do offer incentives. Mercury Telecom provides a cut- price 'frequent caller programme', saving about 12 per cent on calls, for customers who both pay a quarterly fee of pounds 5 and agree to pay by direct debit. Leicester City Council gives its housing tenants pounds 20 BhS spending vouchers if they pay their rent by direct debit.

Unlike direct debits, standing orders give customers control over how much is paid out. A problem that arises with both methods of payment is that banks often seem prone to errors in processing them. The Banking Ombudsman received more than 350 complaints in the last financial year relating to the processing of standing orders and direct debits.

(Photograph omitted)

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