As many of you know, in May all major banks moved to 7-day payments and adjusted the processing of direct debit requests to align with the Responsible Lending Code under the Credit Contracts and Consumer Finance Act.

Whereas in the past, if a customer previously had insufficient funds for a direct debit, the banks may have still put a customer account into overdraft to complete the transaction. This was typically assessed against funds expected to arrive in the customer’s account later, or funds available elsewhere.

Now, under the new Responsible Lending Code, this will no longer happen. The payment will now be attempted multiple times during the day and if none of those attempts are successful, the payment will be dishonoured. Customers may have insufficient funds for reasons that are not immediately apparent to them. For example, where they are using a debit card to which merchant holds have been attached – such as pay-at-pump petrol stations, motels, and similar businesses. Such holds may be in place for up to 48 hours which reduces the balance available for payments even though the apparent balance may show as being sufficient.

What does this mean for your clients?
This change could result in an increase in premium dishonours and therefore an increase of policies lapsing due to non-payment.

How can you help customers manage their insurance premiums?
Check that the customer’s 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.