Direct Debit (Lastschrift) is a very common means of payment in Germany both for regular payments of uncertain value (like the monthly phone or utility bill) and one-off payments like a catalogue or internet order.
Two direct debits systems: Einzugsermächtigung and Abbuchungsauftrag
There are two different kinds of direct debit (Lastschrift) in Germany, but the first one is by far the most common:
The most common form where you authorize the payee to debit your account either for a fixed amount, for any future invoice or for recurring payments. Before a payee is authorized to process direct debit payments through his bank, he has to sign an agreement to the extent that he will only process direct debits where he has received the appropriate authorization, among other things. Normally, only creditworthy customers in good standing are approved for direct debit processing.
The payer’s bank does not check the legitimacy of incoming direct debit payments but disputed items can be returned by the customer for some time (see below).
This one is hardly ever used with private customers and only rarely between businesses. The difference is that the payer authorizes his/her bank to honour direct debit requests from a name payee. The bank then checks incoming direct debits flagged as “Abbuchungsauftrag” to see if a matching authorization by the customer is held on file, otherwise the direct debit is returned marked “No authorization on file”.
The advantage for the payer is that the payee does not have several weeks to dispute a debit, as long as his authorization is on file at his bank. In case of fraudulent Abbuchungsauftrag-direct debits, there is of course still legal recourse, but outside the payment system.
Returning direct debits (Lastschrift-Rückgabe)
Many people who first come into contact with the principle of direct debits in Germany are a bit surprised and fear that to sign a direct debit authorization gives just about everybody the opportunity to drain their accounts. Naturally, reality is far less sinister:
- The direct debit arrangement between payee and his bank (collecting bank or 1. Inkassostelle) stipulates that the payee may only hand in direct debit transactions if he has sufficient authorization from the payer. The arrangement also provides for the collecting bank to debit any returned and disputed transactions to the payee’s account.
- The direct debit agreement (Lastschriftabkommen) between the German banks stipulates that the payee’s bank has to accept any returned direct debits. There is a “no questions asked” period of six weeks from the time of the transaction but if the payer declares that the debit was made without authorization, the returned item must still be accepted by the payee’s bank after this period.
- The general business conditions (Allgemeine Geschäftsbedingungen) between the payer and his bank (paying bank or Zahlstelle) place a general obligation on the customer to check his statements and report any errors or inaccuracies to his bank. A special clause for direct debits stipulates that the maximum period to lodge complaints about direct debits for which the payee had a mandate is six weeks from the receipt of the “Rechnungsabschluss”. This provides the customer with ample time to lodge any complaints with his bank and at the same time gives the paying bank a reasonable time-frame in which to still expect returns.
The system of “Einzugsermächtigung”-Lastschrift is also used for payments e.g. in WWW shops. The payee can arrange with his bank to initiate direct debits without written approval by the payer but has to pass stricter credit checks to be eligible for this exception to the norm.