Reports 26 – Compliance with clause 20.1 of the Code (Direct Debits)

Between March and April 2012, the Code Compliance Committee (CCC) conducted a follow-up review on 44 randomly selected credit unions, mutual banks and building societies (Mutuals) to examine compliance with Section 20.1 of the Mutual Banking Code of Practice (the Code): stopping a direct debit arrangement linked to a transaction account.

Under Section 20.1 of the Code, Mutuals are required to stop or cancel a direct debit facility linked to a member’s transaction account promptly upon request by that member.

The CCC identified that the majority (70%) of disclosure documents reviewed in relation to direct debits provided the correct information to members about the cancellation process, in line with Code obligations.

However, in comparison to the last review in 2010, the results of the shadow shopping exercise showed no change or improvement in the verbal advice provided by Mutuals’ in relation to direct debit cancellation. The CCC once again found that only four out of 10 Mutuals surveyed were fully compliant.

Subject to size of the Mutual, complexity of the business and the number of direct debit cancellation applications received, the report also lists recommendations that Mutuals may wish to consider to improve their compliance in this area:

  • develop a compliance checklist outlining direct debit obligations for use by relevant business units (an example is provided in Appendix A of this report),
  • develop a standard form for members to complete when they wish to stop or cancel a direct debit arrangement which can be downloaded from the website,
  • review direct debit information contained in disclosure documents to ensure its accuracy,
  • review the website (if one exists) to ensure the search function responds to simple keyword searches concerning direct debits and hyperlinks connect to the correct documents,
  • educate relevant staff about the Mutual’s key obligations and processes required to stop or cancel a direct debit facility,
  • educate staff about the impact of incorrect advice, particularly upon members experiencing financial hardship, and
  • monitor compliance with Code obligations in this area by undertaking their own shadow shopping exercises.

Please click here to open a copy of our report in regards to the outcome of our investigations.

We hope that this report will assist you in reviewing your procedures and guidelines in regards to your compliance with clause 20.1 of the Code.


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