Direct debit arrangements

Customer owned banks that subscribe to the Customer Owned Banking Code of Practice have agreed to promptly stop a direct debit facility linked to a customer’s transaction account whenever the customer asks the institution to do so:

Clause 20.1: ‘We will act promptly to cancel a direct debit facility linked to your transaction account if you ask us to do so, and we will give you an estimate of how long cancellation will take. We will not tell you to try to cancel the facility with the biller or other direct debit user first (but we may suggest that you also contact the direct debit user).’

Direct debits defined

A direct debit facility is a simple, convenient way for customers to make payments directly from their transaction account. It is most often used for regular transactions like mortgage repayments, insurance premiums and utility bills.

To pay by direct debit, the customer completes a Direct Debit Request form addressed to the business or company (the biller) that they wish to pay. This form gives the biller permission to debit amounts from the customer’s account.

Cancelling a direct debit facility

Your institution must allow a customer to cancel a direct debit on their transaction account directly with your institution. It must not direct, or suggest, that the customer should first raise the cancellation request directly with the merchant.

However, it would generally be accepted as good practice to suggest that a customer contact the merchant to advise of the cancellation of the direct debit to avoid any fees the merchant may charge for a rejected direct debit.

Although your institution is required to cancel a direct debit promptly, it may require the customer to put their request for cancellation in writing before taking action. It may also set a timeframe in which notification should be provided before the date the direct debit will be cancelled.

Laws that apply

The obligation to deal with disputed unauthorised direct debit complaints is consistent with Code Subscribers’ obligations under the ePayments Code.

While not legally mandated by other laws, this section also reflects current industry practice to help customers cancel direct debit arrangements under the Bulk Electronic Clearing System (BECS) Rules.

Common compliance pitfalls

Our inquiries into compliance with direct debit arrangements found that some Code Subscribers were providing incorrect information about the cancellation process to customers in their disclosure documents and through their call centres. Our recommendations for addressing these problem areas are listed below.

Good industry practice


  • Procedures for cancelling Direct Debit Requests comply with the Code’s requirements. (Consider developing a standard form for a customer to complete when they wish to stop a Direct Debit Request.)
  • Disputes about unauthorised direct debits are processed if they cannot be resolved (at first attempt) by the customer with the merchant.
  • Terms and conditions, together with product information brochures, adequately explain to customers the procedures to cancel a direct debit facility through your institution.
  • All staff are adequately trained and provided with appropriate information to understand their Code obligations.

Find out more

Direct Debit arrangements compliance checklist (PDF, 399 KB, three pages)

Customer Owned Banking Association Compliance Manual (contact COBA for a copy)

Back to the top