When a member disputes a Direct Debit payment with their bank, it triggers an indemnity claim. This article explains what indemnity claims are, what your options are for challenging them, and what to do if a challenge cannot be made.
š¬š§ UK only: indemnity claims are part of the UK Direct Debit Guarantee Scheme. Non-UK Direct Debit schemes operate to different rules.
What is an indemnity claim?
An indemnity claim (also called a DDICA, short for Direct Debit Indemnity Claim Advice) is a request made by a Direct Debit payer to claim back funds they believe have been incorrectly debited from their bank account. The right to raise an indemnity claim is a fundamental part of the UK Direct Debit Guarantee Scheme, operated by all UK Direct Debit providers.
Claims are raised by the payer to their bank, and the disputed funds will be deducted from your account within 14 days of the claim, unless the claim is successfully challenged or the payer withdraws it.
Indemnity claims are rare. On average, they affect only a small fraction of 1% of Direct Debit payers over the lifetime of their membership.
Can I challenge an indemnity claim?
Yes, although the grounds for challenge are narrow. Banks do not consider whether a member is still within a contracted period, or whether they used your club during the paid-for period. Challenges can only be made on technical grounds, set out in the reason codes below.
London & Zurich, the Direct Debit provider for ClubRight Pay, can challenge claims on your behalf as long as supporting evidence is received within 8 working days of the indemnity claim email being issued to you. After 8 working days, the bank no longer allows London & Zurich to make a challenge.
Reason codes you can challenge
London & Zurich can challenge claims raised under the following reason codes, provided you can supply the evidence listed for each.
Code 1: details differ from the advance notice
The amount or date of the Direct Debit differed from the advance notice issued to the payer.
Evidence required (either of):
A copy of the advance notice issued to the payer
A copy of a contract signed by the payer with the agreed collection amounts and dates
Code 2: no advance notice was received
The payer claims they did not receive an advance notice.
Evidence required:
A copy of a contract signed by the payer that includes the advance notice, or
A copy of the advance notice you issued to the payer
Code 3: bank cancels the Direct Debit
The paying bank claims to have cancelled the Direct Debit Instruction (DDI) before the debit was taken, via an ADDACS (Automated Direct Debit Amendment and Cancellation Service) cancellation advice.
Evidence required:
Proof that the paying bank failed to send the cancellation advice on or before the date the debit was presented, or
For paper indemnity claims, evidence that the paying bank failed to include the date of cancellation on the form
London & Zurich will have access to this information to construct the challenge.
Code 5: payer disputes having given authority
The payer disputes that they ever authorised the Direct Debit.
Evidence required (one or more of):
A valid Direct Debit Instruction, or evidence that one has been provided and all other requirements were met
A contract signed by the payer specifically referencing payment by Direct Debit
A contract specifically referencing payment by Direct Debit. This need not be signed if the payer does not dispute the existence of the contract, only the payment method
Code 6: fraudulent signature
The signature on the Direct Debit Instruction is alleged to be fraudulent or not matching the bank's signature record.
Evidence required:
A copy of the signed Direct Debit mandate from your customer
Code 8: service user is not recognised
The payer does not recognise the service user (your club) collecting the Direct Debit, and the bank was therefore unable to identify which Direct Debit to cancel.
Evidence required (one or more of):
A valid Direct Debit Instruction, or evidence that one has been provided and all other requirements were met
A contract signed by the payer specifically referencing payment by Direct Debit
A contract specifically referencing payment by Direct Debit. This need not be signed if the payer does not dispute the existence of the contract, only the payment method
Additional evidence that helps
Beyond the minimum evidence required for each code, any of the following can strengthen a challenge:
Email conversations confirming the Direct Debit setup
Call recordings of the customer confirming Direct Debit setup over the phone, including the information they provided
Any other communication or documentation supporting the above
The one code that cannot be challenged
Code 4: payer has cancelled the Direct Debit directly with the service user. Under UK Direct Debit banking regulations, London & Zurich cannot challenge claims raised under this code.
What if my challenge cannot succeed?
If you believe a claim is incorrect but cannot challenge it through the bank, you can attempt to recover the funds directly from the payer.
Communicate with the payer with supporting evidence, such as attendance records or proof that no cancellation request was received
Many indemnity claims turn out to be incorrect, and some may even be fraudulent
Consider sending a notice before action stating that you intend to lodge a Small Claims Court claim unless the funds are repaid