Are banks in the wrong?

It seems everything is a subscription these days. If we scan through our bank statements, there are recurring payments not just for our mortgage and basic bills but also for everything from Spotify, Netflix and Audible to Aussie Farmers Direct for the basis of our weekly grocery shop. Even the balances for our public transport card and toll road account are automatically topped up.

Zuora’s Subscription Economy Index from June 2017 suggests US-based subscription businesses are growing five times faster than US retail sales – 15.2 per cent a year versus 3.4 per cent. Granted, Zuora is a software company that provides a subscription platform for businesses, so it’s not an impartial observer, but there’s definitely something in it – and it would be similar in Australia.

Of course, businesses love subscriptions because it’s regular revenue they can rely on. Sure, some customers cancel from time to time but most don’t, so a subscription business model evens out the peaks and troughs of cash flow. Combine it with auto-renew, and you’re on to a winner!

The problem is cancelling direct debits can be a pain. Most of the time, banks fob you off by telling you to contact the merchant.

If you listen, you’re at the mercy of individual businesses’ goodwill and efficiency. Some businesses such as Netflix make it easy to pause a subscription. Other businesses make it as hard as possible for the customer to leave – the notice periods are unreasonably long and you have to call by phone during office hours and endure a hard sell or, worse, attend in person and fill out a form. Gyms are notorious for this.

What many people don’t know is that banks are obliged to process cancellations themselves if the direct debit was set up with a BSB and account number. If the bank tells you they can’t, or that you should contact the merchant, they’re in breach of the banking code.

Failing to cancel a direct debit when requested can have devastating consequences for someone in financial trouble – they might wind up overdrawing their account or having transactions dishonoured, resulting in additional fees and charges from both the bank and the merchant, and loss of funds needed for other purposes.

Unfortunately direct debits set up using the long number on a credit or debit card are not covered by the banking code. The Banking Code Compliance Monitoring Committee has recommended banks work with card providers to find a way to let consumers cancel these direct debits with the bank rather than the merchant, but so far only one unnamed bank has done so.

There are more than 50 million direct debit transactions a month covered by the code. Committee chief executive Sally Davis says she does not have a figure for how many direct debit transactions there are through credit and debit cards.

Our belief is that it is higher still, since the card number is printed on the card but looking up your BSB and account number usually requires a few extra steps – time you might not have when you’re on the phone to a provider or signing up to a service through your smartphone.

The report from the committee makes several recommendations for the banks, from publishing clear guidance on their websites to adding functionality to online banking.

In the meantime, consumers should use direct debit sparingly, and sign up with their BSB and account number rather than their credit card where possible. If the need arises, call the contact centre to cancel it rather than popping into the local branch.


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