Direct Debits: How They Work and How to Stop One

You signed up for the gym once, and since then money has left your account every fortnight without you lifting a finger. That's the point of a direct debit, and it's handy right up until you want it to stop, or it comes out on a day your account is nearly empty.

Knowing who can stop a payment, and choosing when it comes out, makes both easier to fix.

How a direct debit works

A direct debit is a payment a business takes from your bank account on a schedule you've agreed to. When you sign up, you fill in a direct debit request, which gives the business your BSB (the number that identifies your bank and branch) and your account number, and permission to take payments from that account.

From then on, the business starts each payment, not you. The amount can be fixed, like a gym membership, or change each time, like an electricity bill. Fixed amounts on fixed dates are the easiest to plan around because you know what's coming and when.

Some businesses take regular payments from your debit or credit card instead. These recurring card payments look the same on your statement but run through the card system, and that changes how you stop them.

How to stop a direct debit

Who you contact first depends on what you gave the business when you signed up.

Banks that subscribe to the Banking Code of Practice have to promptly process your request to cancel an account direct debit and tell the business's bank. You don't need the business to agree. Ask your bank for a letter or email confirming the date the payments stop, and keep a copy.

Telling the business as well isn't required, but it helps, because stopping the payments doesn't end the contract. If you still owe money under the agreement, such as a notice period on a gym membership, it's still owed, and you'll need to pay it another way. Our guide to cancelling subscriptions walks through ending the service itself. The Financial Rights Legal Centre has sample letters for your bank and the business.

If your bank doesn't stop a direct debit after you've asked, you can complain to the bank, then to the Australian Financial Complaints Authority. Your bank also can't charge you overdraft fees to cover a debit taken after you asked it to cancel.

When a direct debit fails

With too little money, a debit may fail or overdraw your account. A rejected payment is called a dishonour or bounce; an overdraft means the bank pays it and your balance goes below zero. Bank and business fees may apply, and an unpaid bill is still due.

The date a debit comes out matters as much as the amount. In a fortnightly pay cycle, the day before payday is often the day your account is lowest. Here's a made-up example: Sam is paid every second Thursday, and her phone company takes $45 on the Wednesday before.

Some businesses let you choose or change the date a debit comes out, so it's worth asking for one just after payday. For a bill that changes each time, checking the amount before it's due helps too. If your bills run monthly while your pay is fortnightly, our guide to fortnightly pay and monthly bills shows how to line the two up.

We are building Clova, a budgeting app that shows bills due before payday beside your available money.

If a direct debit looks wrong

A debit you don't recognise, for more than you agreed or after you cancelled, is worth raising with your bank as soon as you see it. Banks that subscribe to the Banking Code must promptly investigate an unauthorised direct debit when you ask. Reading your statement after each payday makes these easier to catch while they're fresh.

A card chargeback is a different process that only covers card payments, so it can't reverse a direct debit. Our guide to chargebacks explains when that route applies instead.

A direct debit is a set of instructions you can change. Choosing the date it comes out, and knowing your bank will stop it when you ask, keeps it working for you.

A note from us

Clova brings upcoming bills into your pay's plan, including the ones that leave your account automatically.