Martin Lewis has explained a rule around regular payments that is “really important for people to understand”.
The financial journalist explained the different types of payment that you can set up, as some have much more protections than others.
In a recent edition of his BBC podcast, the founder of Money Saving Expert explained the key differences between a recurring payment and a direct debit, as the latter has “powerful protections” that account holders should be aware of.
He explained that in setting up a regular payment, such as for a gym membership or other subscription, if you give your long bank card number, the payment will come from your card, and so you have “little protection”.
However, if you set up a direct debit by giving out your bank account number and your sort code, you have far stronger rights.
Mr Lewis said: “If it’s a payment from the card as opposed to a payment with the bank account number, then it is a recurring payment, and you have far fewer rights on a recurring payment. This is commonly used for subscriptions like Netflix or DisneyPlus.”
He explained that if you give your card details when setting up a payment, you are effectively saying “I’m giving you my card details so you can take a payment when you want to take a payment”.
The expert said: “Each one of those payments is an individual payment, it just recurs.”
Immediate refunds
But the case is different with direct debits. Mr Lewis said: “With the direct debit guarantee, it’s actually far stronger, it’s a specific thing. If you want to cancel your direct debit guarantee, you just need to contact your bank, and they must stop all future payments.
“If you dispute it, because you say it’s been taken in error, it was taken on the wrong date, it’s the wrong amount, it’s taken without authority, with the direct debit, you must get an immediate refund from your bank, even before they go into the dispute process, so it’s very powerful.”
But those with recurring payments could have problems with getting their cash refunded. Mr Lewis said: “With a recurring payment, while you should be able to stop it by going to your bank, I get lots of reports that sometimes that does not happen and they say you have to go to the payment provider.
“Disputing it is far more difficult, it’s no instant, it can be declined, it depends on the card scheme rules, not the statutory guarantee.” Another advantage of direct debits is that when you switch banks, these are moved over automatically, if you switch using the Current Account Switch Service. Whereas for recurring payments, you have to move it over yourself.
The consumer advocate urged: “So it is always worth being aware, if you are making a payment and they are asking you for the card details, not your bank account details, you have far, far fewer protections than you do if you’re paying with an actual direct debit.”
