Your rights when setting up, changing or cancelling a direct debit or automatic payment.
A direct debit is a regular payment that's approved by you but set up and controlled by the business you are paying. The amount can change with each payment.
An automatic payment is a regular payment that's set up and controlled by you. You pay the same amount every time.
Direct debits
How direct debits work
With a direct debit, you give someone else approval to take payments from your bank account electronically. Because you don't have to do anything, a direct debit reduces your chances of missing a payment.
A direct debit can be for the same amount each time, eg a gym membership, or the amount can change with each payment, eg a power or phone bill.
You need to:
- give approval for the direct debit to be set up
- let the business know if your bank account details change
- make sure you have enough money in your account for each payment.
Quick guide: Direct debits(external link) — Banking Ombudsman
Setting up and cancelling direct debits(external link) — New Zealand Bankers Association
Your rights
The business you are paying must let you know in advance the amount and date the payment will occur.
A direct debit is organised with your bank. The bank needs a signed authorisation from you to set up a direct debit.
The bank must act on your instructions if you ask them to cancel or change the direct debit. You don't need approval from the business you are paying to cancel a direct debit, but you should let them know. You still have to pay any money you owe another way.
If there is not enough money in your account to make a payment, the bank can:
- make the payment anyway and charge you overdraft fees or interest
- dishonour the payment — you will have to organise payment separately, and you might be charged a dishonour fee by the bank.
If things go wrong
If you lose money because your bank didn't cancel a direct debit authority when you asked them to, you might be entitled to compensation. This could include a refund for overdraft fees or penalty interest. Or it might be to credit funds debited without authority, unless you benefited in some way from the payment, eg your electricity bill was paid even though the direct debit was unauthorised.
If you can't resolve it with your bank, look into making a complaint to the Banking Ombudsman.
Make a complaint(external link) — Banking Ombudsman
Example — Gym fees
Tom has a direct debit for his gym membership. He cancels the gym membership after two years and asks his bank to cancel the direct debit. He checks his bank statement and notices he is still being charged two months later. He contacts the bank again and complains. The bank agrees to reimburse him for the two months of payments and to stop the direct debit immediately.
Automatic payments
An automatic payment is a regular payment that is set up and controlled by you. The payment is always the same amount.
How automatic payments works
You can usually set up an automatic payment yourself in your online banking. You can choose the amount of the payment and when you want it to be made, eg if you get paid on alternate Wednesdays, you might set up payments to go out every second Thursday so you know you will have money in your account.
You can set an end date for an automatic payment or have it repeat indefinitely until you cancel it.
Your rights
If you don't have enough money in your account, automatic payments usually won't be paid. The bank might try a few times to make the payment. They can charge you a penalty fee if the payment can't be made — check their terms and conditions.
Talk to your bank if you don’t think these are fair.
The bank can only set up an automatic payment on your behalf if they receive a form that has been signed by you or by someone who has authority to sign on your behalf with the bank.
You can change or cancel an automatic payment at any time.