Customers have certain rights to cancel direct debit requests (DDR). They can also amend or dispute their DDR. This article explains what you must do if a customer asks to cancel their DDR.
Rights to Cancel Direct Debt Requests
Customers can ask you to cancel direct debit requests at any time. You must promptly comply with a customer’s request to cancel the DDR. You cannot refuse to cancel a DDR.
Customers can approach your business or their financial institution to cancel a request. If a customer approaches you to process a cancellation, you cannot refer the customer to their own financial institution to cancel the request. This means you have to process the request on the customer’s behalf. If the customer approaches their financial institution for a cancellation, that financial institution will cancel the customer’s request. The financial institution will then notify you that they have made a cancellation.
What Does This Mean for my Business?
While you are required to comply promptly with a request to cancel a DDR, this does not stop you from having business terms and conditions outlining what occurs if a customer does not pay for your services.
If a customer asks to stop a DDR, you do not have to continue providing services if the customer is no longer paying. Your terms and conditions could outline that if a customer does not make alternate arrangements for payment of your fees within a reasonable time, you may cancel that customer’s account and stop providing services.
The cancellation of automatic direct debits for fixed-term agreements can be troublesome. For example, a customer could sign up to a 12-month contract and then cancels six months into the contract. In this situation, some businesses charge an early termination charge.
Under the Australian Consumer Law, you can only charge an early termination charge that is a ‘reasonable estimate of the loss’ suffered by your business. Otherwise, the charge may be a penalty. For example, if a customer cancels a 12-month contract six months into the contract, charging the customer for the remaining six months could be a penalty.
Terms and Conditions
There are certain documents you need to set up automatic direct debits with your customers. These include a:
- DDR form; and
- DDR service agreement.
These documents set out the terms upon which you will establish a DDR with your customer. This includes the customer’s right to cancel the DDR at any time.
Separately to these two agreements, you should have business terms and conditions setting out what occurs if your customer does not pay for your services. This allows you to stop providing your services for non-payment or charge if a customer cancels a fixed term contract early.
In conclusion, customers have the right to cancel any direct debit arrangement they have with you, at any time. Ultimately, you must comply with any request promptly and you cannot turn a customer away to their own financial institution. Make sure you have terms and conditions in place. These should state that if a customer does not pay you, you are not obligated to provide your goods and services.
If you need help drafting your terms and conditions or advice on customers wanting to cancel direct debit requests, contact LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.
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