Planhacker: Be Careful With Direct Debit Payments

Paying your bills via direct debit has many advantages: it's automatic, there's usually no fees involved, and it saves you dealing with paper documents. However, a rise in complaints about how phone companies and ISPs handle direct debit payments shows that a little caution remains wise.

Picture by B Rosen

Earlier this week, the Telecommunications Industry Ombudsman (TIO), which acts as an independent regulator when consumers can't resolve issues with their telephone or internet service provider, issued its quarterly complaints statistics, covering the first three months of 2011. The figures made for slightly depressing reading, with complaints rising 31% compared to the previous quarter, up to 59,532.

Unsurprisingly, a major reason for that rise is dissatisfaction with Vodafone's poor network performance. The number of complaints about Vodafone was 14,670, which was up 96% on the preceding period.

However, a perhaps less-expected trend was an increase in the number of complaints about how direct debit payments are handled. 1,092 of the complaints lodged during the first quarter related to direct debit issues, with consumers concerned that they were being overcharged, charged for cancelled accounts or otherwise ripped off. Here's the statistics on the issue:

Most providers encourage automatic payments, and many impose an additional fee if you use a non-bank option. With the increasing popularity of cap-based plans for phones and shaping options for net access, those payments will often be identical each month. However, if your plan does include excess usage fees, the amount could vary -- and that's where things can get hairy.

One common problem is that additional charges are automatically deducted without prior warning being given, which can cause problems if you don't have sufficient funds in the debited account (or available credit on the credit card). According to the regulator, this is a big fat no-no:

It is the TIO's view that a telco should always give the customer notice before direct debiting any non-regular sum from the person's bank account or credit card.

Other problems identified by the TIO include companies which keep charging a direct debit after an account has been cancelled, failing to charge the fee on the agreed date, and emailing bills after the debit has been imposed All of those generally point to sloppy processes at the telco or ISP, and that impression is often heightened by, as the TIO delicately puts it, "what consumers see as poor customer service" (otherwise known as long wait times, hopeless voice recognition systems and being forced to explain your situation afresh each time you get transferred to the "correct department").

None of that means you should abandon direct debit; it remains the easiest way to ensure bills are paid in a timely fashion. However, it reinforces the importance of regularly checking bank statements to ensure that you're not being charged more than you should. If a problem occurs, take it up promptly with your provider; if they don't resolve it equally promptly, don't be shy about referring it to the TIO.

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Comments

    I love direct Debit, and I have an account dedicated to servicing all of my direct debits.

    I just set up a second account (outside of my every day spendings account, and difficult to access) for savings and all bill payments.
    this ensures I always have money in the account ready for ALL of my payments.
    It is linked to a Debit card too, so if there is any need for credit card direct debit I can set that up too.
    This overcomes the issue of forgetting about a direct debit coming out of my every day account and either leaving me with an un expected $0 account balance OR a missed payment.

      I've taken the same approach for ensuring direct debits weren’t dishonoured previously. This approach came about when I was with a bank that would charge me ~$20 in dishonourment fees for a single transaction. Since then I've switch to an account that doesn't incur a penalty for dishonoured direct debits, and the number of accounts I have that require it have dropped, but will probably open a second billing account shortly.

      My advice though, is rather than letting institutions take fees periodically (ie monthly), is increase the frequency of payments via a scheduled transfer. For example, my mobile plan has a monthly minimum fee of $29. As I rarely exceed my cap, the monthly amount remains pretty much static. As a result, my bank account has a weekly scheduled transfer of $7.25 to my telco. When it comes to bill date, there's rarely any billable balance left on the account for them to charge.

    The number one thing that peeves me about TPG billing is that I know my billing cycle starts on Day "n" but they bill on day "n minus 6". Obviously this is to allow for mistakes and dishonors etc but it's just so annoying that they are billing me 6 days prior to the reset of the billing cycle.

      That and they never notify you about any payments ever, unless they don't go through.
      How about sending us a reminder email at day "n minus (7 or 8)"?

      At the moment I have reminders set up on my google calendar, but because of the "n minus 6" rule coupled with the fact my cycle reset is near the start of the month, I had to set up my reminders in ics files /by hand/ and can't edit the rule in any software I know of.

    I work for a bank and one thing that you really need to be wary of is some providers will try upto 3 times in the one day to get money out of an account and if you do not have funds that can result in getting 3 seperate fee's from your bank as well as from the provider themselves. Best way I have found is to use a debit card as that way it will just decline in most cases with the provider but you will not get charged fees by your bank.

    I always use a credit card where I can, I can reverse/dispute credit card transactions with the bank; it's not so easy to reverse direct debits.

    Would you allow a stranger open your wallet / purse to take out what they think is due ? Never our neighbour had 3 months rent taken over 3 weeks , real-estate at fault but no money returned just 3 months ahead on rent.

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