Indemnity Claims

Indemnity claims, what are they and what do you need to do about them?

Indemnity Claims can be raised by banks on a customers behalf against collecting organisations such as you where payers believe they are due a refund under the DD guarantee.

Indemnity claims are not hugely common but it is best to try and avoid them wherever possible. Sometimes indemnity claims are made for valid reasons by the payer and other times they can be challenged. When challenging them you may be required to supply supporting evidence. The information below will give you some advice for this.

Reason codes and proof required to challenge and indemnity claim

1) Reason Code 1 : Details Differ from the Advance Notice

The amount and / or date of the Direct Debit differ from the advance notice issued to a payer by a service user.

To challenge you can produce either:

• A copy of the advance notice, or
• A copy of a contract signed by the payer with details of the amounts to be collected and collection dates.

2) Reason Code 2: No Advance Notice was received

No advance notice was received by a payer.

To challenge you can produce either;

• A copy of a contract signed by the payer, which includes the advance notice, and or
• A copy of the Advance Notice you have issued to the customer.

3) Code 3: Bank Cancels The Direct Debit

Direct Debit Instruction (DDI) cancelled by a paying bank. Where there is proof an ADDACS (Automated Direct Debit Amendment and Cancellation Service) Cancellation advice has been sent by a paying bank to a service user on or before the debiting day.

Options for a valid challenge:

Where a paying bank fails to send a cancellation advice to a service user on or before the date the debit was presented against the payer’s account. Or in the case of a paper indemnity claim, a paying bank fails to include the date of cancellation on the form. L&Z will have this information to send the challenge.

4) Code 4: Payer has Cancelled DDI Direct With Service User

Where a payer has cancelled a Direct Debit Instruction (DDI) direct with a service user, even if they have not have cancelled the DDI with the bank.

Please note: This is the only L&Z cannot challenge on your behalf under banking regulations.

5) Code 5: Payer Disputed Having Given Authority

A paying bank may request a copy of the payer’s authority before refunding the payer (applicable to AUDDIS service users), or they may contact the service user for further information, although there is no requirement for them to do so.

Options for a valid challenge:

Applicable to AUDDIS service users – where one or more of the following can be provided by you:

• A valid DD Instruction or establish that one has already been provided and all other requirements complied with.
• Evidence of a contract signed by the payer specifically referencing payment by Direct Debit.
• Evidence of a contract specifically referencing payment by Direct Debit – this need not be signed by the payer where they don’t dispute the existence of the contract, merely the payment method.

6) Code 6: Fraudulent Signature

A signature on a Direct Debit Instruction (DDI) is fraudulent or not in accordance with the account authorised signature(s) held by the paying bank.

Options for a valid challenge:

• We will need a copy of the signed DD mandate by your customer/payer.

7) Code 8: Service User is not Recognised

A payer does not recognise the service user collecting a Direct Debit. Where a paying bank is unable to identify and consequently action a payer’s request to cancel a Direct Debit Instruction (DDI)

Options for a valid challenge:

Applicable to AUDDIS service users – where one or more of the following can be provided:

• A valid Direct Debit Instruction or establish one has already been provided and all other requirements complied with
• Evidence of a contract signed by the payer specifically referencing payment by DD
• Evidence of a contract specifically referencing payment by Direct Debit – this need not be signed by the payer where they don’t dispute the existence of the contract, merely the payment method

You can find more helpful information on Indemnity claims and how to reduce them on BACS Website via this link -> https://www.bacs.co.uk/operating-the-schemes/indemnity-claims/

Indemnities within DD Pro

Using our 'Reports' tab you will be able to see if you have any active indemnity claims. If one of your customers does raise a claim the bank will notify us and we will reach out to let you know. From there we would discuss the reason for it and what options we have to help you defend this. DD Pro will handle this for you and let you know of the outcome.