The ability to cancel a direct debit arrangement helps consumers maintain control of their finances and is especially important for those experiencing financial hardship. Under section 20.1 of the Customer Owned Banking Code of Practice (the Code), institutions have an obligation to promptly cancel a direct debit facility on request.

Research finds that poor compliance is ongoing

Despite the importance of this consumer safeguard, recent research by the Customer Owned Banking Code Compliance Committee (the Committee) reveals that non-compliance with the Code’s direct debit obligations remains unacceptably high.

Since 2010, four separate Committee reviews have highlighted widespread non-compliance with the Code’s direct debit obligations, with the most recent follow-up revealing little improvement. In shadow shopping calls, institutions’ customer service representatives gave a compliant response to direct debit enquiries just 57% of the time, and only 38% of institutions were consistently compliant across two separate shadow shopping calls. Online information about direct debit cancellation was also found to need improvement and was readily accessible on only 38% of institution websites. Based on these results, the Committee raised 43 individual breach investigation cases.

According to the Committee, self-reported breach data also points to problems. Institutions have reported increasing numbers of breaches of the Code’s direct debit cancellation obligations, which rose from three in 2015–16 to 13 in 2017–18. In addition, the Committee believes that many breaches of this obligation may not currently be identified and reported, for example, when incorrect verbal information is given to a customer. Such an instance is unlikely to be captured by an institution and hence current breach figures are likely to be understated. As well as breaches relating to cancellation of direct debits, customers also experience problems from errors when direct debit arrangements are set up or disputed.

The Committee has previously made a series of recommendations to institutions on how they can improve their compliance, most recently in 2017. Disappointingly, however, the latest research found that institutions have only partially implemented these recommendations. Even where changes have been made, the Committee found, they do not seem to have led to significant or lasting compliance improvements.

The Committee calls for a sustainable and permanent fix

In the report compiled from the 2018 follow-up own motion inquiry – due to be published end of March 2019 – the Committee calls for a sustainable and permanent fix to this long-standing problem. To that end, the report includes four new recommendations addressing website content, cancellation through online banking, staff training and monitoring.

But the report also recognises that new strategies are needed, and that lasting progress on direct debit compliance will require a deeper understanding of the challenges that have hindered progress to date. The Committee has flagged its plans to engage with the Customer Owned Banking Association (COBA) and institutions to develop this understanding and devise new strategies that are practical and supported by industry.

The Committee’s report also signals a revised approach to compliance monitoring. To keep direct debit compliance front-of-mind, the Committee will step up its ongoing monitoring, asking institutions to report annually on what they have done to improve direct debit compliance. The Committee will also consider conducting periodic, ad-hoc and small-scale shadow shopping exercises to test institutions’ compliance. Monitoring results will be published annually.

Should these strategies be insufficient, the Committee has indicated its willingness to consider stronger enforcement action. In cases of ongoing non-compliance where an institution has not taken reasonable steps to implement its recommendations, the Committee will consider applying sanctions and naming the institutions involved in its Annual Report.