Direct debit can spell trouble

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Paying bills is a tedious household chore, and we are often encouraged to pay by direct debit or, in some cases, regular payments from credit or debit cards.

But beware - there is a flip side to the convenience and that is the need for constant vigilance, as one Working Lunch viewer found out.

Allan Sampson took out an insurance policy with Dial Direct last year and paid through his Visa card.

This year, when the policy came up for renewal, he received a letter from the company informing him of a premium of £394 for the coming year.

Horrified

He thought it looked high, so shopped around and managed to find another quote for £305.

Unsurprisingly, he decided to take the cheaper quote but was horrified to find that when his Visa statement arrived, both amounts had been debited from his account - a total of £699.

Potential credit card benefits

interest-free period

loyalty points

ease of use

He told us: "To my knowledge, I have only authorised the company on a previous renewal and have not given them carte blanche to use the card details whenever they want.

"It strikes me as dangerous to provide card details to any company if it is legal for them to charge you for any service they like, leaving the onus on the customer to cancel if they don't require it."

Authority

Allan is absolutely right in that it is potentially dangerous to set up what is called a recurring transaction or a continuous authority on a credit or debit card.

It's not quite carte blanche, as the company cannot simply start debiting your card when they feel like it.

But signing up for an insurance premium payment does usually constitute an authority from you to the company, to allow them to take regular payments for a service.

And, like it or not, the onus is on the customer to cancel.

Goodwill

Dial Direct told us that this was pointed out in the original papers that Allan signed and was also on the renewal notice.

However, as a gesture of goodwill, when Working Lunch contacted the company they agreed to refund Allan the premium in full.

Ultimately, they're your payments and you have to take responsibility for that.

Sandra Quinn

Would he have been in a stronger position had he set up a direct debit rather than a credit card transaction?

Yes and no.

Yes in that the Banking Code specifically stipulates that if a mistake is made through a direct debit then the bank guarantees to refund the amount erroneously taken.

But no, in that with a direct debit, it is again the consumer's responsibility to stop the flow of payments.

The company simply has to inform you in good time as to how much it will be debiting and for what.

Benefits

And remember - although consumer protection is weaker when paying regular payments by credit card versus direct debit, you needn't discount the credit card option altogether, as it does offer several potential benefits.

These are:

an interest-free period

loyalty points on many cards

ease of use (especially on the internet - giving one number may prove easier than filling in all your bank details)

So what are the lessons learned? Three tips spring to mind.

First, be careful when selecting a payment method, as the one favoured by the company may not be best for you.

For example, the company may prefer a credit card, while a direct debit or even a standing order (where the amount of money which can be taken from your account is for a fixed amount) may suit you better.

Responsible

Second, be vigilant when letters arrive.

They may look trivial, but it could be that you only have a couple of weeks from the receipt of a letter to cancel the payment authorisation.

Finally, be aware that the responsibility for stopping payments is yours alone.

As Sandra Quinn from the Association for Payment Clearing Services (which looks after direct debits) puts it: "Ultimately, they're your payments and you have to take responsibility for that."