Kirsten Ellul and Brenda Galea work at the Regulation and Oversight Office, within Payments and Banking Department, Central Bank of Malta.
With the introduction of the Single Euro Payments Area (SEPA) Regulation in 2012, Maltese nationals like the other European consumers are able to make cashless payments in euro to anywhere in the European Union via two payment methods; credit transfers and direct debits.
The difference between the two is that whilst with a credit transfer the payer can initiate a payment to transfer funds from his or her own bank account to the bank account of the beneficiary, a direct debit works the other way round. In this case, the payer signs an agreement (called ‘mandate’) to give consent to the beneficiary so that the latter can pull the funds from the payer’s bank account when a particular payment is due. While many consumers resort to credit transfers to effect payments, the take up of direct debits is quite limited despite its benefits. As a matter of fact, while the volume of credit transfers processed by local institutions for 2021 amounted to 18.3 million, the number of direct debits only amounted to 1.9 million.
Direct debits are ideal for recurring payments, subscriptions and the payment of bills. Furthermore, it also enables the payer to avoid late payment fees as it is the responsibility of the beneficiary to initiate the process to collect the payment. There may be the wrong idea that through a direct debit mandate, the beneficiary might collect more money than it is actually due. However, the Regulation provides measures which prevent this from happening. Besides it provides other rights to the payer, and obligations both on the beneficiary and the respective banks.
The beneficiary is obliged to inform the payer about the amount and date when the payment is due. Such information should be provided at least 14 days before the payment will be debited from the payer’s bank account. Should there be any changes to the amount, date or frequency of a payment, such changes should be communicated to the payer beforehand.
The most important right that payers have is the 8 weeks right of recourse. If for any reason the payer requests a refund for a payment made through a direct debit transaction, a request for refund from the bank where the account is held can be made and the bank should entertain such refund within 10 business days on a ‘no-questions-asked basis’.
Furthermore, if the payer makes a claim with the bank where the account is held, for a payment which is considered unauthorised or incorrectly executed, then the right of recourse is increased to 13 months.
One has the right to cancel or change the direct debit mandate at any time and free of charge before the payment is due to be made. Once the beneficiary has been informed of such cancellation, payments may no longer be collected.
Finally, if for any reason the payer believes that their rights have been breached, under the SEPA Direct Debit Scheme, the payer has the right to submit a complaint with the paying bank and / or with the Office of the Arbiter for Financial Services.
Further information related to the SEPA Direct Debit Scheme may be requested from the Central Bank of Malta by sending an email on regulation@centralbankmalta.org.