Can a direct debit be recovered? - Case energy suppliers
Recently a number of energy suppliers ran into trouble. Direct debits are usually a good solution for energy players, but it is important to respect the rules.
Early 2019, the Vlaamse Energiemaatschappij received permission from its bank to offer the payment method direct debit to its private and business customers. With their 'Groen Vast' subscription, it was possible to purchase electricity at a fixed rate for one year. In 3 years, the company was able to convince 70,000 customers, the vast majority of whom agreed to pay by direct debit. This was also a good decision by the Vlaamse Energiemaatschappij, as direct debits are the best payment instrument for companies with recurring customers. After all, direct debits contribute to an efficient administration and lower operational costs.
Despite the sharp rise in wholesale prices, electricity and gas had to be supplied as agreed in the many fixed-rate contracts. This proved to be unsustainable, as a result of which the company was declared bankrupt on December 7. A few days before the announcement of the bankruptcy, an advance payment was collected from the direct debit customers, which was considerably higher than the previous monthly advances. Since the company is no longer allowed to supply electricity or gas, presumably wrongful or excessive advances were collected.
How can paid amounts be recovered?
It was explained in many Belgian newspapers and even in the VTM news that customers have the right to reclaim the direct debits up to 8 weeks after the collection. In most Belgian banking apps, you can simply click on 'dispute payment' for direct debit transactions. In this case, the money is immediately refunded to the debtor's account. For some banks this is not possible, but a simple visit to the bank is sufficient to request the refund.
No proof is required. The European regulation has foreseen this as a consumer protection measure. However, this does not mean that the debt expires. An outstanding debt will always have to be settled. The creditor bank must notify the trustee of any refunds. The trustee can contact the customer to collect the outstanding debt.
Does a registered letter also have to be sent to the supplier? The answer is formally no. A simple request, NOT to the supplier, but to the bank will suffice.
8 weeks refund right or 13 months?
Direct debit payments can also be reclaimed after 8 weeks. Payments can be disputed within 13 months if proven that the dispute is justified.
The European Payment Council is very clear about this. A direct debit mandate must contain the following information:
- Creditor number (proof that the supplier is allowed by his house bank to offer the payment method)
- Unique mandate number must already be stated when presenting the mandate
- Debtor details
- Supplier details
- Legal texts copied textually and mentioning the 8 weeks refund period and no variant on this in the case of a “CORE” mandate.
In addition, this document must be signed by the customer on paper or digitally. Often mandate documents are correctly drawn up but do not contain a signature. When the documents are not validly signed; for example because only a box was checked or a button was pressed without any form of signature or explicit agreement via e.g. itsme, eID, bank card, digital signature or any other valid legal electronic signature option, then the refund period of 13 months applies . [More information...](/blog/en/sepa-direct-debit-tips-and-tricks/545323883 .html).
In this case, the debtor can request a refund from his bank. This cannot be done online and must therefore be requested from the bank itself. The debtor's bank will ask the supplier's bank to provide a proof of the legally correctly signed document. If this proof cannot be supplied, the debtor will get his money back. Two additional consequences are associated with this:
- The supplier receives an additional fine of 20 euros or more per refund.
- For unjust claims by the debtor, the supplier has usually provided in its contracts that all costs for refunding or collecting the amount owed are to be borne by the debtor.
So extra consumer protection has been provided, but an invoice to be paid remains an invoice to be paid. If an amount was wrongfully collected more than 8 weeks ago, it is therefore possible to recover that money.
Who takes the risk?
In the first place, it is the supplier who bears the risks. The traditional media or social media can suddenly focus on the recovery of direct debit transactions.
This poses a serious risk, even if the debt has to be settled afterwards in the event of unjustified refunds. Suppose the press suggests that a company is in bad shape and that customers should quickly ask their money back. A serious liquidity drop can cause a company to effectively go bankrupt. In a B2B context, this can be avoided by concluding B2B mandates.
Secondly, it is the creditor bank that bears the risk. Suppose an account is frozen or no money is available, then the creditor's bank must refund the money. This is the reason why a bank must first give permission to the supplier to use the payment method by direct debit. Not any company can use direct debits. The bank will charge the creditor a few cents per direct debit in exchange for the service and the risk.
How to limit the risk as a supplier?
- Automated direct debit process: Don't damage your customer's trust. Try to limit human interventions in the internal direct debit process to avoid errors and unjust collections. Make sure you have a clear view of the failed direct debits with their specific error code. This way you are immediately aware of possible refunds. In this case, it is best to react quickly and contact the customer at once. The follow-up of failed direct debits can easily be automated.
- Legal CORE mandates: Make sure that the direct debit mandates are concluded legally in accordance with the EPC guidelines. Provide the necessary information and have the mandate document signed (online) by the debtor. This way, the refund period will be limited to 8 weeks.
- B2B mandates: For business customers it is best to use B2B direct debit mandates. In this case, there is no refund right and therefore no risk.
Twikey helps companies with their direct debit process. Click here for a no-obligation consultation