Also in the Direct Debit Resource Centre:
The indemnity is an essential part of the Direct Debit scheme and one of the key aspects that differentiate Direct Debits from other forms of payments. Under the Direct Debit Guarantee the Service User must agree to the indemnity 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: An indemnity claimmust be raised for the full amount of the original payment, not part of the amount). 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 counter claim afterwards.
If the error is due to the bank, the bank may raise a refund request, which the Service User can choose to settle but is under no obligation to do so.
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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 fulfils one of the criteria for a valid claim, they will refund directly to the payer.
- The bank will then raise an indemnity against the Service User.
- The Service User can choose to challenge the indemnity within the first 9 days or the amount will be debited after 14 working days
- The Service User then has a further 14 working days to raise a counter claim depending on the reason code.
- The paying bank will consider any counter claim 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 counter claim. 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 consequential loss before receiving funds from the Service User
The Direct Debit Indemnity Claim Advice Report (DDICA)
The DDICA report will advice 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 claim (the date it was produced and the amount – equalling total number of collections being asked for).
Valid Indemnity Claims
There are eight valid reasons where a payer can request a Direct Debit refund. All of the reasons are linked to the payer’s direct debit collection but can refer to an existing or previously ‘active’ direct debit on their account.
The reasons follow a strict criteria, based around failings in the collection or administration of a Direct Debit by the Service User or payers 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 as 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 payers 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 is information is sensitive we have not published a full list of valid reasons here but we can be contacted for further information.
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 route 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 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 (eg 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.
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