Changes to direct debit processing may affect people’s payment of insurance policies
Back in May, banks changed to 7-day payment processing to align with the Responsible Lending Code, under the Credit Contracts and Consumer Finance Act (CCCFA).
Prior to this change, if a customer had insufficient funds to complete a direct debit payment, the bank may have put the customer into overdraft to complete the transaction, based on an assessment of funds expected to arrive in the customers account at a later time or based on funds available elsewhere. This will no longer happen under the Responsible Lending Code. Instead, the bank will attempt to make the payment multiple times during the day, and if none of the direct debit payment attempts are successful, the payment will be dishonoured.
Where this gets tricky, is customers may not realise they have insufficient funds. An example would be when a customer has filled up at a pay-at-pump petrol station and a merchant hold has been applied to their debit card. Due to these merchant holds being in place for up to 48 hours, this can reduce the balance available for payments, despite the balance on the customers account showing as being sufficient.
In cases like this, customers could get caught out with direct debit payments not being processed, leading to premium dishonours and policies lapsing.
Financial Advice NZ suggests that advisers check with customers that their:
wage payment date lines up with their direct debit date and/or that the customer’s insurance premium frequency lines up with their wage payment frequency and amend if necessary by emailing instructions to the relevant provider.
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