The PSD default regime with regard to refund rights in case of authorised transactions when the exact amount of collections is agreed
In the change management process leading up to the preparation of the Core Direct Debit Scheme Rulebook version 4.0 due to take effect on 1 November 2010, a number of suggestions for change requests were received and were subsequently put into public consultation from 15 June to 15 September 2009.
With regard to the Core Direct Debit Scheme it had been suggested to the that the mandate underlying a Direct Debit collection should feature the possibility for a payer (debtor) and biller (creditor) to agree on the exact amount of the collections. For example: a newspaper subscriber (payer / debtor) could agree the exact amount of the monthly payment for the subscription to be collected from his account with the newspaper publisher (biller / creditor). In the case that a payer and a biller agreed on the exact amount of the collection(s) in the mandate, the refund-right for authorised transactions is excluded. The exclusion of the refund right is the default regime stipulated in the PSD in such a scenario.
The Core Scheme Rulebook, by comparison, effectively provides a "no-questions-asked" refund right during eight weeks for authorised direct debit collections.
The accepted the suggestion to provide for a "no-refund" feature as outlined above. However, the decided not to include this feature in the Core Scheme. Instead, the will develop a separate Fixed Amount Scheme for optional use by banks. In the new scheme, the "no-refund" option will be the only feature different from the Core Scheme. A separate scheme helps to implement such a fundamental change, easily explained but quite complex to introduce in an existing Rulebook without inducing confusion to the reader. Most importantly, this approach provides sufficient distinction so that consumers' (payers / debtors) rights are enlightened to ensure adequate protection.
The new optional Fixed Amount Scheme is aimed to facilitate payment for goods and services such as, for example, public transport tickets, concert tickets or lottery tickets. Generally, such goods and services, once provided and consumed, are not subject to consumer redress.
Complete consumer protection also under the new optional Scheme
As does the Core Scheme, the additional FA Scheme provides for complete protection of payers (debtors) such as consumers. In the event of unauthorised direct debit collections, the payers right to claim a refund as stipulated in the PSD and, accordingly, in the Core Scheme, extends to thirteen months. Naturally, the right to a refund in case of an unauthorised transaction during a period of thirteen months is granted to the payer also under the new optional FA Scheme, in full compliance with the PSD.
The mandate to be signed by a payer (debtor) authorising a biller (creditor) to collect payments under the new FA Scheme will clearly highlight the difference to the Core Scheme as regards the exclusion of the refund right in case of authorised transactions to avoid misuse of the “no-refund” feature. Also: the mandate to be signed under the new optional FA Scheme will specify the exact amount of the collection as well as the frequency of the collections. In case the biller (creditor) collects a different amount than the amount stated in the mandate or if the biller (creditor) diverts from the frequency of collections agreed in the mandate, the payer can make a claim for a refund stating a case of an unauthorised transaction.
Clear separation means no confusion
There are a number of reasons to develop the "no-refund" feature as a separate scheme rather than to include this feature as an option in the current Core Scheme:
The Core Scheme effectively gives the unconditional refund right for authorised transactions within eight weeks. This "no-questions-asked" refund right is viewed as a fundamental principle of the Core Scheme. It is therefore considered confusing for all concerned to introduce a new feature into the Core Scheme which would align the refund rights in case of authorised transactions with the default regime established by the PSD. It is also confirmed that, as a best practice, a separate scheme aimed for this purpose is currently in place in some European marketplaces where these schemes are operated seamlessly and are accepted among payers (debtors) such as consumers and billers (creditors) alike.
Also, the two existing Rulebooks ( Core and B2B) already have the e-mandate option as a Rulebook annex and it is felt undesirable to proliferate this approach; i.e. to continue adding annexes to the existing Rulebooks, with possible interference between numerous annexes if other solutions not conveying risk of confusion are available and prove superior.
The clarity afforded by developing a separate optional Fixed Amount Scheme extends to the adjacent deliverables, in particular ensuring that the Implementation Guidelines are kept as straightforward as possible. These adjacent deliverables, e.g. new documents to be delivered by the together with the new FA Scheme Rulebook, include:
- Interbank and Customer-to-Bank Implementation Guidelines (based on ISO 20022 XML Direct Debit Message Standards).
- Implementation Guidelines for the e-mandate XML messages.
- A separate mandate (plus approved translations) and a specific set of layout guidelines. It should be clear that, as for the Core and B2B Schemes, mandate translations will need to be provided in local language and English. It will be a requirement that the mandate which applies the PSD default regime is clearly different from the Core and B2B mandates and clearly states that no refund is applicable for authorised transactions when the exact amount and the frequency of collections are agreed.
- An adherence pack including the necessary documentation for payment service providers wishing to adhere to the new FA Scheme (see also below).
Avoid two mandates in one scheme
As mentioned above, there will be two clearly different mandates, i.e. one for the Core Scheme featuring the "no-questions-asked" refund right for authorised transactions, and one for the new optional Fixed Amount Scheme which excludes the right in case of authorised transactions when amount and frequency of the collections are agreed. These two mandates are best kept apart in separate schemes. Debtor rights will be clear in each case, with fewer possibilities for misunderstandings.
Clear distinction between mandatory and optional features
Only those Scheme Participants (payment service providers) wishing to offer the new option would need to refer to the separate FA Rulebook. This is seen as preferable to all Scheme Participants having to navigate a more complex document containing several options, some of which could be irrelevant for readers. With a separate Rulebook for the new optional FA Scheme in place, the Core Rulebook therefore will not contain any material which is of interest only to a select audience.
Time to Market
Given the market demand in several communities, the new Fixed Amount Scheme should be launched as soon as possible. The option of a separate scheme places no constraints on this endeavour. Were the "no-refund" option to be included in the Core Scheme, then - in accordance with the timelines underlying the scheme change management process - a one-year freeze period would apply and the feature could only be introduced in November 2011.
It is expected that the new FA Scheme Rulebook will be published in June 2010. The new scheme rulebook, once issued, will follow the same scheme management process and time cycle as the Core Scheme.
Separate adherence to the new optional Fixed Amount Scheme is required
There will be a separate adherence process to the new optional FA Scheme for payment service providers wishing to offer services based on this scheme and adherence will only be open for those who also adhere to the Core Scheme. The adherence process is scheduled to commence in the third quarter 2010 so that communities could start delivering the service by November 2010. A separate Register of Participants for the new Fixed Amount Scheme will be published on the web site (along the Participant Registers for , Core and B2B) to provide clarity on which banks are reachable for the new scheme.
As participation in the new FA Scheme will be optional and considering that the “no-refund” feature for authorised transactions is currently common practice only in a few communities and under specific business conditions, it is, for the time being, not an objective to achieve full reachability within for the FA Scheme. An initial narrow scope will provide more comfort to users that need experience to digest the feature and will be helpful in providing a growing acceptance that, eventually, will foster its use beyond the departing case.
Javier Santamaría is the Chair of the Payment Schemes Working Group.
Related article in previous issue of the Newsletter::
1. Note that the "exact amount"-feature in this context differs from the optional B2B Scheme (which went live on 2 November 2009) where variable amounts are a key requirement of users.
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