This post is the second in my Payment Methods and What You Should Know series.
What is a direct payment? This is a bank transfer from your account, to another person, or organisation's bank account, for the purpose of paying a bill. A reference number or code is usually attached to the process so the other party can see the payment and tie it up with the relevant transaction at their end.
It's a really convenient way of paying someone as you have full control of where the money goes and when, i.e. when you press the go button. However, care must be made when you do this to make sure the money doesn't go astray. Get a single digit wrong and you've got problems...
I recently read a story in the paper about a woman who lost over £26,000 ($41,000) when she entered an account number incorrectly. She arranged a regular transfer of £1,000 a month from her business acount, to what she thought was her joint account with her husband and neither of them noticed it wasn't arriving for 26 months!!
They made someone else very happy, and that someone else went ahead and spent all of the money. Unfortunately for the couple involved, the error wasn't the bank's fault, so the money can't be reclaimed from the bank. They could persue the recipient through the courts, but there's problems with this. Firstly, the bank won't reveal who it is due to data protection issues, and having communicated with the other customer, advised that the recipient doesn't have the funds to pay it back anyway. It appears the money has gone for good...
So, when I set up one of these, I always send £0.01p first to check everything's fine before sending the whole amount. This also ensures the reference number for the payment ties up with my account properly, as that has caused me endless problems before now as well. It's quite distressing if you receive threatening letters when you know you've made the payment, but due to an incorrect reference number, the organisation involved isn't aware of the fact.
So is there any form of protection for these transactions?
If the bank itself makes an error, yes, you can claim your money back directly from the bank. Unfortunately, this is unlikely, as you initiate the transfer, and complete all the details yourself. More often than not, it is a user error. The customer makes the mistake entering the details.
In cases such as these, if you can show the money was meant to go somewhere else, the bank can take it back out of the other incorrect account, providing it's still there and hasn't been spent, otherwise you would have to take acction yourself directly against the other account holder.
Legally, the law is quite clear cut, the money is yours and you can take the person who has your money to court in a bid to retrieve it, however. as you can see from the story, in practice, the actual process involved isn't always that straight forward.
Despite the dangers, direct payments are a very good way of making a payment. They are quick and the funds arrive at the other end within minutes. The rule of thumb with direct payments though, should be test the details first to be sure. Especially if you are sending a large amount, or regular payments.
If you want to read about the unfortunate couple, the story is here - The £26,000 banking error