UK Banks Responsible For Direct Debit Scams – Don’t Use Direct Debit Or You Could Lose Your Money

January 26, 2012

If you want to avoid problems with your money and bank accounts, the message has to be “don’t use Direct Debits and don’t let anyone, not even a company you think is reputable, have your bank account details and don’t trust your bank to be honest“.  It is clear that as automated payments go, Standing Order is by far the safer bet where you have full control over what is paid out of your bank account.

And does this also sound far-fetched:

National Westminster Bank plc, in particular, part of the Royal Bank of Scotland Group of banks encourages Direct Debit scams and enables fraudsters to take money out of your bank account with non-existent Direct Debits.  And when the problem occurs they do nothing to prevent a recurrence.  NatWest appears to have no anti-fraud measures regarding Direct Debits and appear to care even less about this problem.

In fact it is not far-fetched and has been going on for a number of years.  The problem of Direct Debit fraud is extensive according to research by Liverpool Victoria Insurance which reveals that over 97,000 Britons have fallen victim to criminals setting up fraudulent direct debits from their accounts.  An average of £540 goes missing before the customer notices.  Direct debit payment fraud in 2010 accounted for around 10.6% of all identity fraud cases.  The extent of Direct Debit scamming is set to grow to 41,000 cases a year by 2013, equating to a 57% rise.

But that is only part of the problem.  And it is not just “criminals” but what many decades ago might have been considered “reputable” organisations.

It appears that if you have issued a genuine Direct Debit instruction which is later cancelled – so that there is no longer any  Direct Debit – money can be and is being taken from bank accounts just like yours under the non-existent Direct Debit.

The research shows that in 2009 £385 million was taken from customers’ bank accounts with obsolete Direct Debits.  For those customers who find out, it takes them on average four months to notice and its cost around £190 each time.

No figures or estimates were provided for what this costs customers who do not notice.  However, it is clear there is substantial number of people losing considerable amounts of money annually because the obsolete Direct Debit is neither noticed nor recovered.

So how can you not notice?  Only one in five customers (21%) confirmed they check their balance once a month.  The average customer who does notice takes 4 months to do so.  For cases where the loss is noticed but accounts are not checked monthly they lose 10% more [£611 compared to £540 for those who check their bank statements at least once a month].

Another reason this is not noticed by consumers is that some Direct Debits are annual and for small amounts which do not get picked up and corrected.

And is that the end of the problem.  No chance.  When you contact the bank they will tell you you must contact the company who took the money out of your account to agree cancellation of the Direct Debit before you can get a refund.  That is wholly untrue.  The express terms of the Direct Debit scheme are that you only need to contact your bank to cancel the Direct Debit.  Once it is cancelled it legally no longer exists – there ceases to be a valid Direct Debit.  You only need to contact your bank and no one else.  The binding legal contractual provision binding on all parties provides:-

…… If an error is made in the payment of your Direct Debit, by …… your bank or building society you are entitled to a full and immediate refund of the amount paid from your bank or building society. ……..

You can cancel a Direct Debit at any time by simply contacting your bank or building society. Written confirmation may be required. Please also notify us.”

And is that the end of the problem?  No chance.  That previously annual now non-existent cancelled Direct Debit for £85.00 can still be used to take money out of your bank account for years to come or even sporadically some years and not others.  It is a crooked company’s dream. If they do this and it is not noticed they gain.  If it is noticed you get your money back after your time is wasted but the same company can do the same thing next year and the next and the next.

And is that the end of the problem?  No chance.  In the case of NatWest they do not even check to ensure there is any Direct Debit at all before taking the money out of your account.   The UK’s National Westminster Bank plc, part of the Royal Bank of Scotland Group of banks may not be the only bank which is encouraging Direct Debit fraud but it is one where it is now clear there are no controls against anyone setting up Direct Debits on your NatWest account nor against repeatedly doing so.

Here is what happened to a NatWest business customer in Wales:-

Snowdonia Tourist Services hit by fraudsters  by Dan Beavan, Daily Post Apr 27 2009

A TOURISM agency lost hundreds of pounds after fraudsters set up fake direct debits to take cash from its accounts.  …..  Hefin and Marian Williams and their daughter Gwen Thomas, 48, were shocked someone had managed to set up the fake direct debits  ….  they say they’ve been let down by the authorities and have been left with no protection against the same thing happening again …..

Angry Gwen said: “It would appear anyone can do this without us authorising it.   If I want to speak to my bank I have to answer eight questions, yet they let just anyone set up direct debits on our account.  If you notice an odd direct debit and ask the bank to explain, you’re given the phone number of the company to start sorting it out yourself.  Once you’ve convinced that company that you’ve not set up the direct debit, you have to phone the bank back to arrange an indemnity refund.  After noticing a number of fraudulent debits on their account this month and last, Gwen said NatWest told her she “shouldn’t worry” because they were protected by indemnity.  Gwen said: “But that’s if you notice someone has taken money in the first place.”  She’s asked the bank not to allow any direct debits on their account – but the bank said it couldn’t.

A NatWest spokesman said: “ …. It’s not our practice to advise customers when a new direct debit is set up ….”

The writer of this blog item has banked with NatWest for some years and has direct experience of this problem.  Every year for over 8 years NatWest has been allowing an organisation to take money out of a business account with a non-existent Direct Debit.  It may only be a small amount of money but it is only picked up because of accounting procedures and it takes time every year to sort out – and time is money.

The overall problem of course is the steady and continuing erosion of ethical behaviour in leading financial and governmental institutions.  If the Board Directors of RBS or NatWest or their children or other relatives become the victims of crime or do not like rioting and looting like that seen recently on London’s streets, they are in no position to complain.  They are setting the moral and ethical standards and the ethos which others copy in one way or another.


2 Responses to “UK Banks Responsible For Direct Debit Scams – Don’t Use Direct Debit Or You Could Lose Your Money”

  1. Just to say that if you don’t trust any organisation with your bank details, and you want to set up a standing order you would have to send the mandate to your bank instead of as normal to the organisation so they can record the existence of the SO. You could send the latter a copy with the bank account number redacted.
    Even if you only ever use cheques these contain your account details. Unless banks change their arrangements you can never be safe.
    I am thinking of my mother in law aged 92 …

  2. PM [edited for anonimity] Says:

    It seems to me that banks are oiutside the legal framework as far as the ‘ordinary’ joe is concerned. We had an 8 year 50 50 mortgage from TMB (Lloyds Bank) scheduled to end in May 2011, in the last two years we overpaid with their consent and the idea was that the overpayments (£8k) would be applied to the interest only portion. Just before the term end we asked how much we owed and were surprised to find that they had lost just under £4k of the overpayments. We sent in a large payment as a gesture of goodwill whilst they found the money. They found the money by April 7th. but took from April to August to tell us, in the mean time they extended the mortgage without our permission and that has left us with a bill for £2k as a result. The FOS is unsympathetic and refuses to help us. All payments were made by direct debit. Do we have a case?

    Many thanks.

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