January 27, 2010
The European Payments Council (EPC) would like to make a few clarifications regarding direct debits schemes in the Single European Payments Area (SEPA).
Firstly, the SEPA Direct Debit Schemes developed by the European Payments Council (EPC) in close dialogue with customer representatives do not grant or deny consumer rights – the law defines consumer rights. Hence, the SEPA Direct Debit Schemes apply consumer rights as stipulated by the law, i.e. the EU Payment Services Directive (PSD).
Secondly, the SEPA Direct Debit Core Scheme (SDD) provides for complete protection of consumers due to a ‘no-questions-asked’ refund for an eight week period after a consumer’s account was debited in cases of incidentally authorised direct debit collections.
In the event of unauthorised direct debit collections, the consumer’s right to claim a refund extends to thirteen months. The refund rights in case of authorised transactions enjoyed by consumers under the SDD Core Scheme are actually the most generous refund right possible under the PSD. In addition, banks servicing billers who collect direct debit payments must ensure that only trustworthy billers are able to collect payments via SEPA Direct Debit.
Thirdly, the SDD Schemes are based on the same business assumptions and basic trust between the parties involved as the direct debit model present in the majority of EU member states where this model has become a well-spread choice to conduct payments and to perform trades in an efficient and reliable manner. It is not credible that millions of consumers, firms and institutions are wrong in countries such as Germany (6.9 billion direct debits in 2007), the United Kingdom (3.0 billion), France (2.9 billion), Spain (2.2 billion) or the Netherlands (1.2 billion).
Fourthly, the additional optional SDD Scheme to be developed by the EPC does not exclude consumers’ refund rights. To reiterate again: consumer rights are stipulated by the law. The new optional SDD Scheme in fact will apply the default regime provided by the PSD as regards consumers’ refund rights; e.g. the refund right is excluded in cases of authorised transactions when the exact amount of the direct debit collection is agreed between the consumer (payer) and the biller (payee).
Details on the SDD Core and the new optional SDD Scheme are set out below.
The SEPA Direct Debit model is trusted by the majority of consumers in Europe
The SEPA Direct Debit is based on a model used and trusted by millions of consumers in those EU countries where direct debit is the favourite means of electronic payment. Today’s national direct debit schemes fall into two broad categories: those that are creditor-driven and those that are debtor-driven. The SDD Core Scheme is based on the first model; e.g. a creditor-driven mandate flow.
With a mandate the consumer authorises a biller to collect payment by direct debit. In addition, the mandate authorises the consumer’s bank to debit the consumer’s account in case a direct debit collection is presented.
The SDD Core Scheme uses a traditional paper document featuring the handwritten signature of the customer as basis of the agreement between a debtor (payer) and a creditor (payee). Under the SDD Core Scheme, the debtor completes and signs a paper-based mandate and sends it directly to the creditor. The creditor – not the debtor bank – is responsible for storing the original mandate, together with any information regarding amendments relating to the mandate information or its cancellation.
In this scenario the debtor bank does not receive any mandate-related information from its customer, nor is the debtor bank responsible for checking the right of a creditor to collect a payment from a debtor’s account. As indicated above, an easy, ‘no-questions-asked’ refund procedure within the timelines specified in the PSD applicable in all SEPA countries protects the customer from unwanted debits to his account.
The majority of national legacy direct debit systems existing in the EU today are based on this creditor-driven model.
The SEPA Direct Debit model provides flexibility to accommodate the preferences of all consumers
To accommodate the preferences of consumers living in those EU member states currently using the so-called debtor-driven mandate flow, the SEPA Direct Debit includes the option to create mandates through the use of electronic channels – called e-mandates. The inclusion of the e-mandate option in the SEPA Direct Debit not only provides an additional means of authorising direct debit collections: the e-mandate feature accommodates the habits of bank customers used to direct debit processes existing in some EU member states today which rely on mandates issued by the customer’s bank (debtor bank).
In the event that the consumer issues an e-mandate, the mandate information stays directly with the consumer’s bank, thus providing the option to verify the authorisation of a direct debit collection.
The EPC established the EPC Customer Stakeholders’ Forum (CSF) in mid-2007 together with representatives of organisations acting on the European level on behalf of different customer segments including corporates, retailers, SMEs and consumers to ensure that user requirements are fully taken account of in the process of designing the SEPA schemes. All members of the CSF confirmed that there are no show-stoppers with regard to the roll-out of SEPA Core Direct Debit.
Additional optional SEPA Direct Debit Scheme applies the PSD default regime with regard to consumers’ refund rights
The EPC will develop a an additional optional SDD Scheme which will apply the default regime defined in the PSD with regard to authorised transactions in cases when the exact amount of the payment is agreed between the consumer (payer) and the biller (payee). In these cases, the refund right is excluded.
For example: a newspaper subscriber (debtor/payer) could agree the exact amount of the monthly payment for the subscription to be collected from his account with the newspaper publisher (creditor/payee). The ‘no-refund’ feature in the new optional SDD Scheme will adhere to this principle established by the PSD.
The ‘no-refund’ feature in the new optional SDD Scheme will be the only difference from the SDD Core Scheme. Including this feature in a separate SDD Scheme provides a sufficient distinction so that consumers’ rights are enlightened to ensure adequate protection.
Like the SDD Core Scheme, the new optional SDD Scheme provides for complete protection of the consumer. In the event of unauthorised direct debit collections, the consumer’s right to claim a refund as stipulated in the PSD extends to thirteen months. Naturally, the right to a refund in case of an unauthorised transaction during a period of thirteen months is thus granted to the consumer also under the new SDD Scheme, in full compliance with the PSD.
The mandate to be signed by a debtor (payer) authorising a creditor (payee) to collect payments under the SDD ‘No-Refund’ Scheme will clearly highlight the difference to the SDD Core Scheme as regards the exclusion of the refund right in case of authorised transactions to avoid misuse of the ‘no-refund’ feature. Also: the mandate to be signed under the SDD ‘No-Refund’ Scheme will specify the exact amount of the collection as well as the frequency of the collections. In case the creditor collects a different amount than the amount stated in the mandate or if the creditor diverts from the frequency of collections agreed in the mandate, the consumer can make a claim for a refund stating the case of an unauthorised transaction.
SEPA Schemes evolve based on robust, inclusive and transparent change management process
The EPC ensures stability for its Credit Transfer and Direct Debit Schemes based on a robust, inclusive and transparent change management process for enhancements which provides every market participant with the opportunity to introduce suggestions for changes to the SEPA Schemes. The evolution of the SEPA Schemes reflects the preferences of a broad majority of market participants as identified during annual public consultations on scheme development.
Last but certainly not least, the EPC wishes to clarify that SEPA is a policymaker-driven EU integration initiative designed to complete the internal market and monetary union. The EPC understands that a change programme of this dimension requires adjustments by all market participants. To ensure a smooth transition it is crucial to provide the public with accurate and fact-based information on the SEPA programme in general and the SEPA Schemes in particular.
Gerard Hartsink, EPC Chair
Herman Segers, EPC Secretary General
About the European Payments Council:
The European Payments Council (EPC) is the decision-making and coordination body of the European banking industry in relation to payments. The EPC defines common positions for core payments services, provides strategic guidance for standardization, formulates best practices and supports and monitors implementation of decisions taken. The EPC consists of 76 members comprising banks and banking communities. More than 300 professionals from 32 countries are directly engaged in the work programme of the EPC, representing all sizes and sectors of the banking industry within Europe.
The EPC develops the payment schemes and frameworks necessary to realise the Single Euro Payments Area (SEPA). SEPA is an EU integration initiative in the area of payments designed to achieve the completion of the EU internal market and monetary union. SEPA is the area where citizens, companies and other economic participants can make and receive payments in euro, within Europe, whether within or across national boundaries under the same basic conditions, rights and obligations, regardless of their location. SEPA is currently defined as consisting of the EU 27 member states plus Iceland, Norway, Liechtenstein, Switzerland and Monaco.
For further information on the EPC please contact firstname.lastname@example.org or visit www.europeanpaymentscouncil.eu.Author : Letters to the EurActiv editor