Mutuals' handling of direct debits 'disappointing'

Less than half the mutuals surveyed in a recent shadow shopping exercise were compliant with the direct debit practice standard contained in the Mutual Banking Code of Practice.

Mutuals have been called on to review compliance with their obligations, to improve disclosure documents and to be more conscientious about staff training.

Between March and April this year, the Code Compliance Committee, an independent compliance monitoring body, randomly selected 44 credit unions, building societies and mutual banks to test their compliance with their obligations for handling customer requests to stop a direct debit arrangement.

Under section 20.1 of the Mutual Banking Code of Practice, mutuals are required to stop or cancel a direct debit facility linked to a member's transaction account promptly upon request by the member.

The committee found that 70 per cent of disclosure documents provided the correct information to members about the cancellation process.

But in a shadow shopping exercise, using approaches to call centres and branches, only 39 per cent of mutuals were fully compliant. Twenty nine per cent were partially compliant and 32 per cent were non-compliant.

The result was no better than that reported during a similar exercise in 2010.

In cases where the mutual was non-compliant, staff told the customer that the mutual could not cancel a direct debit facility and that the customer would have to lodge the request with the merchant.

In its report, the CCC said: "The results of this review are disappointing and do not meet the CCC's expectations. All disclosure documents should contain correct information about direct debit cancellation. 

"In addition, mutuals should ensure that correct information is provided to members who contact call centres and branches seeking advice on the cancellation process."

CCC has recommended that mutuals develop a compliance checklist, outlining direct debit obligations, and a standard form; review direct debit information in disclosure documents and on websites; and be more conscientious in training staff.