Also in the Direct Debit Resource Centre:
Direct Debit Indemnity Claims
The Indemnity Claim is an essential part of the Direct Debit Scheme and one of the key aspects that differentiate Direct Debits from other forms of payment. Under the Direct Debit Guarantee, the Service User must agree to the Indemnity Claim process.
This Guarantee is unlimited in time and amount, so a Payer can always request a full and immediate refund from their paying bank or building society if they believe that an error has been made. (Note: A Direct Debit Guarantee Indemnity Claim must be raised for the full amount of the original payment, not part of the amount, but there is no direct Debit Indemnity Claim time limit.) The bank will be required, under the Guarantee to refund the Payer.
Service User error
If the error is made by the Service User, the bank will use the Indemnity Claim process to reclaim the refunded payment from the Service User. Indemnity claims in most cases are automatically collected after 14 working days unless challenged. Depending on the reason for the claim, the Service User may challenge the claim, or counterclaim afterwards.
Bank error
If the error is due to the bank, the bank may raise a refund request which the Service User can choose to settle – but they are under no obligation to do so.
Need Help Responding to Indemnity Claims?
A Process Review can help you improve your processes and reduce Indemnity Claims.
Direct Debit Guarantee Indemnity Claims: process
The Service User must not settle an Indemnity Claim by remitting directly to the Payer. This is because the paying bank will settle an indemnity with the Payer and the Service User will still be liable to pay the paying bank – thereby paying twice.
– The Payer contacts their bank and asks for a full and immediate refund
– The bank considers the request and, if the Indemnity Claim fulfils one of the criteria for a valid claim, they will refund directly to the Payer; any false Direct Debit Indemnity Claims should be rejected here
– The bank will then raise an Indemnity Claim against the Service User
– The Service User can choose to challenge the Indemnity Claim within the first 9 days or else the amount will be debited after 14 working days
– The Service User then has a further 14 working days to raise a counterclaim, depending on the reason code
– The paying bank will consider any counterclaim and act within 90 days to settle or dismiss
Indemnity Claims: Timescales
Indemnity Claims must be settled by the Service User to the bank within 14 working days. Under the automated service, the Service User doesn’t have to undertake an action as their account will automatically be debited the amount of the Indemnity Claim. The Service User must then consider whether to raise a counterclaim. There are 3 exceptions where a paper indemnity form must be used rather than an automated transfer of information. These are:
– Where the amount claimed is greater than £100,000
– Where the SUN is no longer recorded on the Bacs system
– Where a claim is being made for consequential loss (due to the need for supporting information/justification). Note: banks are not required under the scheme to make payments for a consequential loss before receiving funds from the Service User.
Direct Debit Indemnity Claim time limit
There is no time limit for raising an Indemnity Claim.
The Direct Debit Indemnity Claim Advice Report (DDICA)
The DDICA report will advise you of any Indemnity Claims that have been raised against the Service User by a paying bank. This is typically instigated by a Payer making a bank refund request for one or more Direct Debit collections.
Below is a sample DDICA report which carries details of the Indemnity Claim (the date it was produced and the amount – equalling the total number of collections being asked for).
Valid Indemnity Claims
There are 8 valid reasons why a payer can request a Direct Debit refund. All of the reasons are linked to the Payer’s Direct Debit collection, and can refer to an existing or previously active Direct Debit on their account.
The reasons follow strict criteria, based around failings in the collection or administration of a Direct Debit by the Service User or Payer’s bank. The Payer, when approaching their bank, makes a refund request, as covered by the Direct Debit Guarantee. If the Payer’s reason is deemed valid, they are then provided with a full and immediate refund of the total value of the disputed collection(s) by the Payer’s bank.
An Indemnity Claim must be raised for the full amount of the original Direct Debit collected. It cannot be raised for partial amounts. In most cases, the claim is raised by the Payer’s bank but Services Users are also allowed to raise Indemnity Claims on the Payer’s behalf. In addition, it is possible for a Payer to claim for “consequential loss”; however, this will not be refunded to the Payer until the paying bank has been refunded for such by the Service User.
As this information is sensitive we have not published a full list of valid reasons here, but we can be contacted for further information.
False Direct Debit Indemnity Claims
We can’t guarantee that a false claim won’t be raised, but the system of checking is robust and can be expected to weed out anything untoward. It’s there to protect the Service User as much as the Payer.
Challenges and Counter Claims
On occasions, Indemnity Claims are raised incorrectly. As a result, the Scheme has developed two options for Service Users: challenges or counter claims.
Note: These are not the only routes open to the Service User. The Service User may often be better off pursuing the Payer directly if a contract is in place and monies are owed. Direct Debit is purely a method of payment and does not affect the underlying contract between the Service User and their customer.
Bank Refund Request
If the error is found to have been made by the paying bank, the paying bank cannot raise an Indemnity Claim. If, however, there is cause, they may raise a Refund Request with the Service User. The Payer will already have received a refund and therefore a Service User shouldn’t settle directly with them as the Payer could be paid twice. The Service user can:
– Refuse to settle the request
– Settle part of the request (e.g. by deducting an admin fee)
– Settle the whole amount
Paying banks are not permitted to raise an Indemnity Claim if an identical Refund Request has previously been refused by the Service User. In this instance, the Service User should raise the issue with their sponsor bank.
Expert Assistance from Clear Direct Debit
Indemnity Claims can be tricky to negotiate, especially if you have never dealt with one before. If you need further assistance, there are two main ways we can help. Clear Direct Debit is a Bacs Approved Provider of both training and consultancy. Interested? Read more about our Direct Debit training and consultancy services.
If you want more comprehensive help, consider using our Bacs Bureau Services. We can make life easier and deal with every aspect of managing Direct Debits – and Indemnity Claims – on your behalf.
And of course, if you simply need a bit of friendly advice, just get in touch to see how we can help!
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