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Direct debit fails due to a lack of funds

Last Edit: 18/06/18

A direct debit is an instruction given to your bank or building society, that allows an organisation to collect fluctuating amount of money from your account on a regular basis. Direct debits can only be setup if you have given prior notice to your bank for the date of collection, and the funds are then deducted from your account automatically. Direct debits are a convenient way to pay regular bills -- council tax, energy, tv license, car insurance, internet, telephone, mobile phone etc. Direct debits are regulated, organisations that offer direct debits are 'vetted', so, if any major change in your direct debit changes -- such as the amount being taken out of your account or the date it is being taken out -- then you should be notified in advance (should be ten days). Any mistakes/errors made by your bank or the organisation you have setup the direct debit with, should result in a refund. Direct debits can be canceled, but the organisation you are canceling the direct debit with should be notified, because it can lead to legal issues if they are still providing you with goods/services.

The Direct Debit logo, which is displayed by most banking websites and bank branches

The Direct Debit logo, which is displayed by most banking websites and bank branches

Most direct debits are taken from your account early in the morning, which can be an issue if you are relying on funds to come into the bank on the same day to pay the direct debit. To solve this issue, in 2014, the Financial Conduct Authority (FCA) agreed a "same-day retry system" with seven major UK banks: Barclays, Co-operative, HSBC, Nationwide, RBS, Santander and National Australia Group. These banks will typically give customers up to 2pm to pay their direct debit, by attempting a second try if the first failed in the morning.

So, with all the above in mind, it should be clear that direct debits are a relatively safe, fool proof, and regulated way in which to pay bills. There is little that can go wrong on the customers side, except for a lack of funds to pay the direct debit amount requested: referred to as a 'Returned Direct Debit' or 'Bounced Direct Debit'. Direct debits typically fail due to mounting debt issues, or household administration errors. Whilst there are no charges issued by banks to setup a direct debit, they will typically issue a charge/fee if the direct debit fails due to a lack of funds: which typically ranges between £5 and £30. Another issue to note: if you have a bank overdraft, then your bank may pay the direct debit if the funds are not in the account, your account then becomes overdrawn, and can then be subject to overdraft charges.

In conclusion, if you believe you have been unfairly charged, or a mistake has been made with a direct debit, it should be rectified by contacting your bank, or failing that, you can consult with the financial Ombudsman to clarify or fix the situation. However, if the direct debit failed due to personal finance administration: then you will probably have to accept the fine. The organisation requesting the funds by a direct debit will probably contact you when it 'bounces', and will probably attempt to organise an alternative method to settle the bill. Some organisations will take double the amount on the next direct debit if the first bounced. If you think you will have ongoing problems with paying your direct debits, then it would be wise to contact www.citizensadvice.org.uk.