Direct debit authorisation - easy and convenient procedure for cashless payment transactions

Direct debit authorisation (SEPA direct debit mandate) is one of the cashless direct debit schemes that banks offer internationally. In practice, the account holder authorises the payee to collect the owed amount from his bank account. The payee then instructs his account-holding bank to collect the amount from the current account of the payer. A requirement for the direct debit procedure is a collection agreement on the collection of receivables, which the account holder must have concluded with his bank in advance. The banks do not check whether the receivable is justified, but merely execute the payment order. They debit the payer's account and credit the amount to the payee's account. In this respect, direct debit authorisation constitutes the reverse of a bank transfer.


Legal evaluation and formalities

Legislation on direct debit authorisation is based on the German Civil Code and the EU Payment Services Directive of 2009 . More specific provisions are made by the banks' general terms and conditions and the jurisdiction of the Federal Court of Justice. A special feature of the direct debit procedure is that with the direct debit authorisation, the debt to be discharged by remittance becomes a debt to be collected. For the parties concerned, this means that the creditor is required to make use of the direct debit authorisation. If your creditor fails to arrange the direct debit in a timely manner, you will not default because of this. This applies even if you have insufficient funds in your account at the time of the late direct debit. The direct debit authorisation does not legally represent an instruction to the account-holding bank, but an authorisation for the payee. For a direct debit to be authorised, the account holder must agree to it. However, the effectiveness of direct debit authorisation does not depend on formalities. You may authorise a direct debit in writing, verbally or implied conduct. Participation in the electronic payment procedure constitutes implied and thus conclusive conduct. By submitting a bank card and entering the PIN code, you show your willingness to participate in the direct debit procedure.

Right to cancel the direct debit authorisation

As banks do not check direct debit authorisations before executing the transaction, payers have a free-of-charge right to object. As an account holder, you have the option to object to a national direct debit within six weeks of clearance of the account, without giving a reason. The bank then posts the debited amount back to your account. At the same time, the account of the payee is debited by the amount. If you grant direct debit authorisation to a company in another European country, the objection period is extended to eight weeks. The relevant date for the start of the period in this case is the day of the debit entry on your account. Any objection must be made in written form. Electronic communication channels are an exception. With many banks one can now raise an objection with a click on the relevant button on the online account statement. Timely sending of the declaration is sufficient for keeping the objection term.  If a direct debit is not authorised by a direct debit authorisation, the objection period is extended to 13 months. This also applies to fraudulent debits. Nevertheless, you as a bank customer are obligated to check your bank statements regularly. This allows you to detect unauthorised debits in good time.

The distinction between direct debit authorisation and debit order

The terms direct debit authorisation and debit order are often used interchangeably. In fact, these are two different forms of direct debit procedure. Unlike direct debit authorisation, you do not issue a debit order to the payee but rather to your bank. The bank therefore checks whether a debit order exists before executing debits. The difference between direct debit authorisation and debit order particularly affects the right to object. For agreements among business people, the right of objection may be limited. You also have the option to revoke the debit order from your bank in future. Debit orders are usually arranged among business people, whereas direct debit authorisation is widely used by private individuals.

Direct debit return

Banks only execute the direct debit collection if the account has sufficient funds. If the credit balance or credit line is insufficient, a direct debit return will be made. Also, if the account number does not match the account holder, the bank will return the debit. The debit return follows a procedure exactly defined in the debit agreement. The bank credits the debit amount again. At the same time, the bank of the payee debits his account by the amount. The bank informs the payee of the reason for the debit return. If the debit return is due to lack of funds, the bank may not indicate this. In this case, it informs the payee that the debit has been submitted and not paid. Banks are not entitled to charge fees for debit returns. Therefore they charge the cost of the debit return procedure to the submitter of the direct debit.