A direct debit is an instruction from a customer (Debtor) to their bank or payment services provider, authorising an organisation (Creditor) to collect variable or fixed amounts from their account, as long as the customer (Debtor) is given advance notice of the collection amounts and dates.
Direct Debits are collected in the Single Euro Payment Area (SEPA) through the SEPA Direct Debit Core Scheme (SDD). The scheme allows a Creditor to collect funds from a Debtor’s account once a mandate has been provided by the Debtor to the Creditor.
SDD provides a standardised direct debit payment service that will enable consumers to pay for goods and services in any SEPA reachable country without having to open a bank account in that country.
Some key points to note regarding the SDD Scheme:
- The Creditor and Debtor must each hold an account with a financial institution located in SEPA
- A BIC (Business Identifier Code) and IBAN (International Bank Account Number) are required to set up a SDD
- The transfer of funds between Creditor and Debtor always takes place in euro
- The SDD may be used for single or recurrent direct debit collections
- The Creditor is responsible for issuing, storing and maintaining the mandate
- SDD supports two mandate types, ‘one-off’ mandates, used to collect single payments, and ‘recurrent’ mandates, where the Creditor can indefinitely continue to collect payments for the purposes described on the mandate
- Advance notice of the date and the amount of each direct debit must be provided by the Creditor. The advance notice period is generally fourteen days, or in some cases seven days or less if agreed by all parties, before the direct debit is applied
- Once advance notice is received the Creditor will collect the funds directly from the Debtor’s bank account on the due date
SEPA Consumer (Debtor) Rights
Under the SEPA Direct Debit Core Scheme Rules and SEPA Regulation 260-2012 consumers can:
- Use a single account to pay a SEPA Direct Debit in any SEPA country
- Instruct their bank to refuse a SEPA Direct Debit
- Prohibit the application of any SEPA Direct Debit to their bank accounts
- Specify creditors who may collect SEPA Direct Debits from their bank accounts
- Specify creditors who may not collect SEPA Direct Debits from their bank accounts
- Limit a SEPA Direct Debit collection to a certain amount and/or period
- Request a refund for any SEPA Direct Debit within eight weeks from the date on which the SEPA Direct Debit was debited from their account. Within the eight week period their bank must refund on a ‘no-questions asked’ basis
- Request a refund for any unauthorised SEPA Direct Debit after 8 weeks and within 13 months from the date on which the SEPA Direct Debit was debited from their account.
More information on the SEPA Direct Debit Core Scheme is available from the European Payments Council