Finance Law :- Details of The Revised CBN Regulation For The Direct Debit Scheme in Nigeria
The Central Bank of Nigeria (CBN), pursuant to its guaranteed powers under the Central Bank of Nigeria Act 2007, released its revised direct debit regulations based on its recognition of existing and emerging multichannel options (online platforms, instant payments,etc) applied for direct debit instructions in Nigeria as well as for the purpose of harmonizing direct debit regulations with evolving developments in the Nigerian payments system.
This article will be looking at direct debit instructions as a concept and the relevant provisions of the revised CBN Regulations.
What is a direct debit instruction?
A direct debit instruction or mandate is a cashless form of financial settlement which facilitates recurring payments. It permits the originator of the instruction , known as “the biller” to collect amounts due from a prayer through the player’s bank by leveraging on an instruction or mandate provided by the payer.
An entity wishing to participate as a biller in the Direct Debit Scheme will typically contact its bank or payment service provider. The service may be deployed on channels provided by the biller through its bank or payment service provider.
Who are the recognized participants in the direct debit scheme under the CBN regulations?
The recognized participants in the direct debit scheme are :-
– The biller
– The biller’s bank
– The payer
– The payer’s bank
– The payment service provider
What are the roles of these participants?
The Biller
– A biller shall be an entity incorporated or registered by an appropriate authority to carry on business and shall be onboarded to the direct debit scheme by a bank or payment service provider after satisfactory due diligence.
– A biller shall obtain the mandate of the payer through a platform provided by the biller or its appointed agent/partner either in paper or electronic form, duly verified by the payer’s bank.
– A biller shall provide clear terms and conditions, which shall be applicable to a direct debit payment arrangement between it and the payer.
– A biller shall comply with the terms of the mandate executed by the payer for the initiation of a direct debit transfer.
– A biller may withdraw from the scheme voluntarily or be required to withdraw from the scheme.
The Biller’s Bank
– The biller’s bank shall be a member of the clearing system or integrated with a payment service provider that accepts direct debit for processing.
– The biller’s bank shall hold an account for the biller to receive proceeds of direct debit.
– It is the responsibility of the biller’s bank to give information, advice and guidance on all aspects of the scheme to the biller where applicable.
– The biller’s bank shall obtain an executed direct debit indemnity from the biller before commencement of any debit transfer under this scheme.
– The biller’s bank shall accept cancellation of a direct debit mandate only from the biller.
The Payer
– The payer shall execute a direct debit mandate in order to participate in the direct debit scheme.
– A payer may cancel a direct debit mandate at any time upon such notice to the biller as specified in the direct debit mandate provided that such cancellation shall not be effective until the end of the current billing cycle.
– A payer may raise a claim through the payer’s bank against the biller in the event of a successful debit after mandate cancellation.
– The payer shall give a cancellation notice of not less than 10 Business days terminating at the end of the current billing cycle.
The Payer’s Bank
– The payer’s bank shall be a member of the clearing system or integrated with a payment service provider that accept direct debit for processing.
– The payer’s bank shall obtain the authority of the payer either in paper form or electronic form before activating a direct debit mandate on the payer’s account.
– The payer’s bank shall not subject an activated direct debit mandate to further payer’s confirmation at the point of payment.
– The payer’s bank shall render report of all direct debit mandates unpaid due to insufficient funds on a monthly basis to a licensed credit bureau and the credit risk management system or as may be required by the CBN.
The Payment System Service Provider
– A payment system provider shall execute direct debit in line with the direct debit mandate.
– A payment system service provider shall give information, advice and guidance on all aspects of the scheme to billers on its platform.
– A payment system service provider shall accept cancellation of direct debit mandates only from the billers on its platform.
What are the control mechanisms for participating in the scheme & consumer protection provisions?
The payer shall be notified of the following activities by SMS and/or email :-
a). Set-up and approval of the direct debit mandate by the biller, payment service provider or both.
b). Direct debits into the payer’s account by the payer’s bank.
c). Amendments/modifications made to the direct debit mandate by the biller or payment service provider as applicable.
d). Cancellation of a direct debit mandate by the biller or the payment service provider as applicable.
e). Payer’s banks, billers and PSPs shall keep records of all direct debit transactions for a period of not less than 6 years from the date of cessation of the direct debit mandate.
f). Payer’s bank shall go through its normal confirmation process upon receipt of a direct debit mandate to verify its authenticity.
g). The payer’s bank and the biller’s banks shall comply with the Nigerian Bankers’ Clearing System rules as applicable to the scheme.
What are the business and operational rules following direct debit mandates under the CBN regulations?
– Direct Debit transactions can either be fixed direct debits or variable direct debits up to the maximum amount stated in the mandate.
– Every direct debit mandate shall clearly state whether it is a fixed or variable mandate.
– There shall be a platform provided by the biller for the initiation of a direct debit mandate.
– Each biller shall put in place a process for returning wrongful mandates to the payer.
– Any change in the terms of a direct debit mandate shall require a cancellation of the existing mandate and issuance of a new one.
What are the provisions of the CBN Regulations regarding unpaid direct debits?
The payer’s bank shall return any unpaid direct debit instruction within the clearing cycle. The biller’s bank/payment service provider may represent an unpaid direct debit instruction within 24 Hours or as agreed with the payer for the same amount that was originally dishonored.
What is the minimum advance notice requirement under the CBN regulations?
A biller shall give an advance notice of 10 Business days minimum or as agreed with the payer on a mandate before :-
– The first payment
– Changes to the amount and due date
In all cases, an advance notice shall allow sufficient time for a payer to raise a query, countermand a single payment or cancel the transfer.
Are direct debit mandates binding on the payer’s bank?
No. A direct debit mandate shall not constitute an agreement between the biller and the payer’s bank.
What are the provisions of the CBN Regulations regarding claims under the direct debit indemnities?
– Any claim under a direct debit indemnity should be brought within a period of 1 year from the date of the debit.
– A biller shall honour an indemnity claim within 5 business days from the date of receipt of the claim.
What are the applicable penalties for infractions of provisions contained in the CBN regulation?
Penalties for infractions shall be based on sanctions prescribed in the Nigerian Bankers Clearing System rules.
What is the prescribed dispute resolution mechanism for direct debit disputes?
All disputes emanating from Direct Debit transactions are to be referred to the CBN Dispute Resolution mechanism.
