This week, the European Payments Council (EPC) published the Clarification Paper on the Use of Electronic Mandate Solutions in order to make clear how to use an electronic direct debit mandate to authorise payments.
The paper highlights the implications for creditors when collecting funds under the SEPA Direct Debit (SDD) scheme if they are unable to prove that a legally binding electronic signature was provided by the debtor.
E-Mandate forms are completed by the customers purchasing goods and services, otherwise known as the debtors, and are provided by creditors, the retailers or service providers. SDD allows a creditor to collect funds from a debtor’s account, provided that a signed mandate has been given to the creditor. The debtor signs a mandate in order to authorise the payment and to inform their bank to pay those collections.
E-Mandates were created with the standardisation of all European banking systems into the Single European Payments Area (SEPA), which is a regulation that ensures that all electronic payments can be processed as easily as cash payments.
The EPC paper states that the “efficient handling and the acceptance of electronic mandates are very important elements for the successful use of SEPA Direct Debits.” However, problems have become evident because the Payments Services Directive (PSD) and the SEPA regulation “do not specify how a mandate should be signed by the payer”, the EPC paper states.
The EPC offers creditors guidance about the use of mandates and also provides translations of the mandate text into the SEPA languages, as specified in the SDD Core and Business to Business (B2B) Rulebook, which make issuing e-Mandates possible. When used correctly, e-Mandates are a secure option that banks can offer their customers because of the many advantages.
For creditors, this solution allows fully automated end-to-end issuing, amendment and cancelation of mandates without having to deal with organisational, technical or local barriers. Alongside this, the debtor’s access to the account is always confirmed by the bank which means that the e-Mandate process’ automatic storage and retrieval of data is secure.
However, the report suggests that creditors should be aware that they are liable for providing the proof of e-Mandate validity and if unable to provide this proof, the creditor would be exposed to a refund claim from the debtor. “The creditor should be aware that not all kinds of legally binding methods of signature may allow for easy proof that the mandate has been authorised by the debtor. This remaining risk should be part of the normal business risk analysis of the creditor.”
Debtors are entitled to request the refund within eight weeks from the date on which the amount was debited from the debtor account and can be refunded on a no-questions-asked basis. However, this does not relieve the debtor of their responsibility to resolve any issues with the collection. “A refund does not relieve the debtor of its responsibility to resolve any issues in respect of the disputed collection with the creditor, not does the payment of a refund by the debtor bank prejudice the outcome of such a dispute.”
But for debtors, e-Mandates are convenient because they offer a solution that does not include printing, signing and posting a paper form to the creditor. The online process also ensures that e-Mandates will be processed and the debtor can rely on the electronic banking systems that they are already familiar with.
The EPC paper concludes with a message that encourages communication between the creditor and debtor and with their customers in order to avoid risk and problems in the future. “Creditor banks and debtor banks are encouraged to communicate the above explanation to their respective payment service users.”