Ensuring the continued legal validity of legacy mandates under the Direct Debit Scheme
The mandate is completed by the debtor (a customer purchasing goods or services) to authorise the creditor (a retailer or service provider) to collect payments via Direct Debit. At the same time, the mandate includes the authorisation of the debtor bank to pay these collections. It is not likely that mandates created under current national direct debit schemes will meet all of the requirements of the mandate as defined in the Core Direct Debit Scheme Rulebook - nor could they be expected to as they were created before the Rulebook w as launched. The has therefore introduced a Migration Rule to allow these current mandates to be used under the Scheme without the creditor or creditor bank incurring any breaches of the Rulebook.
This Rule will only apply to legacy mandates, e.g. mandates which have been issued under a national direct debit scheme before the creditor has changed to the Scheme - it will not apply to new mandates entered into after the creditor has transferred to the Scheme. The creditor and creditor bank must comply with all the Rulebook requirements relating to mandates created after that date.
The main elements of the Rule enabling creditors to use existing mandates under the Scheme as now included in section 5.17 of the SEPA Core Direct Debit Rulebook version 3.3 are described as follows:
Requirement to provide the IBAN
Migration Rule 5.17.3 helps creditors and creditor banks by looking in turn at each data item which must be supplied on the mandate and explaining how these can be addressed if they are not contained in the legacy mandate.
Some of the required data, such as the debtor's name, will always be present on the legacy mandate and so no additional action is needed. However, other items may be more problematic. For example, the IBAN (International Bank Account Number) of the account to be debited will not be on the legacy mandate. In this case, Rule 5.17 provides that this should either be provided by the debtor bank or calculated on behalf of the creditor bank based on debtor account information. Several communities have addressed this issue through the services of information brokers who are able to carry out the calculation necessary for determining an IBAN from the debtor's account number. It is envisaged that the information broker would be engaged by the banks to carry out this service. Provided that the creditor has complied with this rule, the Rulebook requirement for the creditor to ensure that the mandate contains the mandatory legal wording and data is waived.
Requirements to provide a copy of the mandate
In several places the Rulebook requires the creditor to provide to the creditor bank a copy of the Mandate if this is requested by the debtor. This would not be possible for a creditor relying on a legacy mandate which is not in written form. Migration Rule 5.17.2 therefore waives these requirements in respect of legacy mandates provided that:
- the relevant legacy scheme rules allowed non-paper based mandates
- the creditor bank can provide evidence that the mandate had been properly entered into under the legacy scheme rules; and
- the mandatory data has been collected and stored in accordance with Migration Rule 5.17.3 (see above).
Treatment of legacy mandates as "Mandates"
The final Migration Rule ensures that (except for the Migration Rules) the Rulebook will apply to these legacy mandates in the same way as all other Mandates.
Creditor mandate flow schemes and Debtor mandate flow schemes
Many legacy schemes are creditor mandate flow (CMF) schemes, however a number of legacy schemes are Debtor mandate flow (DMF) schemes. A DMF scheme is basically a direct debit scheme under which the debtor bank, rather than the creditor, receives and retains the mandate. This different mandate flow has raised some additional implications for creditors wishing to migrate to the Scheme and so Migration Rule 5.17 is divided into two sections - the first applies to CMF schemes and the second applies to DMF schemes.
Pragmatic approach eases migration to Direct Debit
This new Migration Rule provides significant practical assistance to creditors wishing to transfer legacy mandates to the Scheme. The simplification of the data requirements in respect of legacy mandates will also give creditor banks a very useful tool in convincing clients to migrate euro direct debit transactions to .
Kevin Brown is the Chair of the Legal Support Group.
See section 5.17 of the SDD Core Rulebook
See section 5.17 of the SDD B2B Rulebook
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