Direct Debit and Other Rent Payment Options
Some Real Estate Agents request that tenants entering into a lease set up a direct debit with the agency for payment of rent. However, tenants should be aware of some potential problems with paying rent via direct debit.
The following information is sourced and adapted from the fact sheet – “Banking: Pitfalls with Direct Debits for Cheque/Savings Accounts” produced by the Consumer Credit Legal Centre, NSW. To view that information click here.
What is a direct debit?
A direct debit is when you allow the merchant, in this case the Real Estate Agent (REA), to debit (take money from) your bank account on a regular basis to pay for goods or services, such as rent.
How does a direct debit work?
1. You agree to pay rent by direct debit.
2. You sign an agreement called a Direct Debit Request (DDR). This form tells your bank to deduct money from your account to pay the REA for the rent. The REA cannot deduct money from your account without a signed DDR.
3. Money will be taken from your account until you cancel the Direct Debit.
Should I use direct debit to pay rent?
This will depend on your situation.
The advantages are:
- You do not have to worry about paying rent by the due date. With a direct debit the REA and bank organise the deduction of the amount due for you.
The disadvantages are:
You have to watch the balance of your account to make sure there is enough money to cover the amount being deducted. If you have trouble doing this then you should consider other payment options.
- It can be very costly for you if you do not have enough money in your account to cover a direct debit. You may be charged a dishonour fee by the bank. The bank may also choose to process the direct debit anyway and overdraw your account. Then the bank may charge you a fee for overdrawing your account and interest.
- It is more difficult to dispute a payment after the payment has already been taken from your account by direct debit.
- It can be difficult to stop direct debit payments. Although see below on how to stop direct debit payments quickly and effectively
The TU has also encountered the following problems with direct debits through REAs:
- As the DDR originally signed by the tenant does not specify the amount to be deducted, the tenant’s consent would not be needed to vary the amount. This means that where there is a disagreement about the amount of rent owed (e.g.: if the tenant is disputing a proposed rent increase), the REA may go ahead and deduct their preferred amount.
- Similarly, if there is a dispute about when the tenancy terminated, and therefore when the last rental payment is due or how much is owed, the REA will have the upper hand in deducting what they believe is due.
- The REA may inadvertently debit an incorrect amount or take a double payment– which may not only put the tenant in financial difficulty, but also lead to overdraw and/or dishonour fees, as outlined above.
- The REA’s bank may charge a fee for any failed payment (e.g. if the tenant’s account has insufficient funds at the time of the attempted deduction), which the REA may seek to recover from the tenant.
- The REA may delay or refuse to reimburse the tenant for an overpayment; instead counting it towards future rent payments.
- The REA may fail to debit the account at all, leading the tenant into rent arrears through no fault of their own.
- Direct debit transactions may go through after the tenancy is terminated.
Most of these problems may be caused by administrative error or simple misunderstanding; however they can lead to serious consequences for the tenant.
HOW TO CANCEL A DIRECT DEBIT
Step 1: Write a letter to your bank/financial institution saying that you are cancelling the direct debit. Address the letter to the branch where you opened your account. Keep a copy of the letter as evidence that you cancelled the direct debit, and make sure it is signed and dated.
Step 2: Write a letter to the REA stating that you have cancelled the direct debit. Keep a copy of the letter, and make sure it is signed and dated.
(Both steps 1 and 2 should be done at the same time)
Step 3: Ring the financial institution to check that the direct debit has been cancelled a few days after you send the letter.
Some tenants have been led to believe (whether by the bank or the REA) that the tenant cannot cancel the direct debit with the bank, as only the REA can cancel it. THIS IS NOT TRUE. At the end of the tenancy you can cancel the direct debit as outlined above (make sure rent is paid up to the termination date).
However if you wish to change the way you pay your rent during the tenancy – and direct debit is the established and agreed method – you will need the consent of the Real Estate Agent first. Method of rent payment is a term of the contract, and you alone have no authority to alter terms of the contract.
CONSIDER OTHER PAYMENT OPTIONS
Given the number of potential problems, it is generally best to avoid paying rent by direct debit if there are other suitable options available. The following are just some alternatives:
The advantage of paying rent by direct debit (i.e.: not needing to worry about paying rent by the due date because the amount owed is deducted for you automatically) could equally be achieved by setting up a periodic payment directly with your bank or credit union.
A periodic payment allows a regular payment to be made automatically from your bank account to the REA’s account on or before the due date, and is perfect for rent payments as the amount does not fluctuate (unless there is a rent increase, but this can only happen once per year).The crucial difference between this and a direct debit is that you are not putting control over the payment into the hands of the REA. Like direct debit, you need to make sure that you have the available funds to make each payment. But it is much easier for you to cancel or vary when you need to, and you are not reliant on the REA, or vulnerable to administrative errors that may be made. You can enquire with your bank about setting up a periodic payment. Be sure to check if there are any set up costs or transaction fees before going ahead. You will also need to be provided with the REA’s bank details to make the payment into. Be aware though that if your rent increases, you will need to vary the periodic payment amount.
RENT CARDS AND THIRD PARTY COMPANIES
As noted in the FAQ, rent cards are becoming an increasingly popular method of rent payment within the real estate industry. These cards are generally sponsored by franchise groups and administered by another company. Examples include:
- RE Connect oneCard,
- Raine & Horne Pay Card
- LJ Hooker Priority Card
In a rent card (or rent pay) scheme, the tenant enters into an agreement with a third party (the administering company) which allows the company, when authorised by the tenant (such as by telephone or internet) to process electronic rent payments from a nominated financial account.
The service incurs a monthly fee (often about $3 per month) which is usually paid by the tenant who is also subject to pay additional fees in certain circumstances including if there are insufficient funds in the nominated account, or if a credit card is used. The administering company often issues a rent card branded with the franchise name to the tenant and they tend to operates dedicated web pages and phone lines for rent payments for each of the franchise groups.
if you are thinking of entering into such a scheme be sure to check all charges and fees and read our FAQ on rent cards here.
One disadvantage of manual payments is that you have to remember to make the payment every time rent is due, but the benefit is that you are in control and know exactly what is going on. This is particularly helpful if your income is likely to fluctuate.
This is another option of electronic payment, but payments are made by you manually. BPAY payments can be made over the telephone or internet. To set up BPAY you will need to contact your bank and get a password (and set up internet banking, if necessary). You will also need to get a biller code and a rental account number from your REA. Make sure you keep track of payments by recording the date and reference number. A calendar is a good place to record these payments. It may take a couple of days to register a BPAY payment, so make sure you leave enough time for the payment to go in by the due date.
DIRECT MANUAL PAYMENTS (IN PERSON)
This method is good if you work or live near your REA’s office and are happy to go in to pay rent each time it is due. Direct payments may be made by cash or cheque – however some REA offices do not like to accept cash payments. If you are paying cash, make absolutely sure the person who takes your money enters the payment on your rental ledger, and issues you with a receipt before you leave. There will be no other way for you to prove the payment was made in the event of an error or dispute.
PAYING AT A BANK
Some REAs provide tenants with a bank deposit book for the tenant to make payments into the REA’s account at the bank. Once again this is a good option if the appropriate bank is handy to where you live or work, and you don’t mind waiting in a queue.