Aug 05, 2019
What is an indemnity claim?
In the world of Direct Debit, there is one term which when used can provoke very different reactions depending on the audience and that is ‘indemnity’ and ‘indemnity claim’.
What is an indemnity claim?
Many of the reasons why consumers feel confident in using Direct Debit as a payment method are linked to the Direct Debit Guarantee. The Direct Debit Guarantee states that if an error is made in the payment of the Direct Debit by the collecting organisation (service user) or the payer’s bank or building society (paying Payment Service Provider or PSP) – then the payer is entitled to a full and immediate refund from their PSP. This is referred to as an ‘indemnity’. The Direct Debit Guarantee is unlimited as to time and amount, so an indemnity can be raised at any time regardless of whether the payer is still a customer of the service user. If a payer requests a refund and there is an identifiable error, the paying PSP will issue the refund and this happens automatically within 14 working days of the date of the claim.
An ’indemnity claim’, using the official Bacs explanation, is a request by a paying PSP against a service user where payers have sought refunds under the Direct Debit Guarantee. The service user is the licenced Direct Debit scheme member, so this may be the actual organisation the payer was in contract with or it may be the bureau collecting the Direct Debit payment who the organisation is using the service user number of. In the latter case, the bureau would then act to recover the refunded claim amount from its customer.
Can an indemnity claim be challenged?
Yes. The service user has the right to make a counter claim or raise a challenge. Challenges occur when the service user refutes an indemnity claim received from a paying PSP prior to settlement of the claim, and counter claims are made following the refund to the payer. In some cases, a paying PSP may contact the service user in advance of issuing a refund and request evidence before issuing the refund, but these are at the discretion of the paying PSP.
Bacs has specific guidance available on the valid reasons for making a challenge or counter claim, and these principally focus on whether the rules and guidelines have been correctly followed. Depending on the reason given for challenging or counter claiming, Bacs may require the service user to provide evidence to support its case.
Are there ways to ensure a payer cannot raise an indemnity?
Yes and no. A customer or payer is well within their rights to raise an indemnity under the Direct Debit Guarantee, and in most cases the paying PSP honours this unless they feel that there is most definitely not an error and it can be proven.
In order to reduce the possibility of not being able to provide supporting evidence to the paying PSP in the event of wishing to challenge or counter claim against an indemnity, service users should take care to follow the Direct Debit rules and guidelines as outlined by Bacs. In addition, if using a Direct Debit bureau, service users should take advice from their bureau who will have experience in successfully counter claiming.
At SmartDebit our indemnity claim rate is declining year on year, as we work to ensure that our customers as service users are following Bacs Direct Debit scheme rules and guidelines and have approval on their templates and payer communications.