A direct debit is a transaction that occurs within a person's bank account, giving the bank authorisation to make payments for certain transactions. These direct debit transactions are often recurring payments but can also be done for one-time transactions as well. Direct debit guarantees provide the issuing bank protection if a payment is in question.
A direct debit can be originated using several different methods. For most banks and businesses, debits are set up by telephone, Internet, face-to-face or via an automated phone system. Direct debits typically are set up through the company being paid. If a customer is paying a utility bill this way, she would contact her utility company and fill out the appropriate forms or answer the appropriate questions. The utility company then sends a debit order to the customer's bank. Every month the company sends a new order because the amount debited each month changes.
A direct debit must be authorised by the account holder in order for the bank to confirm the transaction. A direct debit guarantee protects banks in the event of a problem with a payment the bank has made. This guarantee offers the bank a full refund in the event of a dispute and holds the bank innocent while the investigation takes place. This guarantee protects not only the bank but also the customer. All money is refunded, without question, until the investigation is complete.
Through the use of the Internet, paperless direct debit guarantee orders are becoming more popular. This means that a customer does not necessarily have to sign for an order to take effect. This is why it is possible to sign up for direct debits over the phone and the Internet. If a business begins fraudulently sending in direct debit orders without the customer's consent, the account is protected by the direct debit guarantee.