Australia's biggest banks have ignored major problems with unauthorised direct-debit transactions for years, leaving customers out of pocket and frustrated.

Key points: Bank customers are often told some direct debits can't be cancelled

Bank customers are often told some direct debits can't be cancelled Under the banking code, banks must act on a request to cancel direct-debit transactions

Under the banking code, banks must act on a request to cancel direct-debit transactions Financial Counselling Australia says banks are failing to address problems

That is according to a submission to the Royal Commission into the Misconduct in Banking and Financial Services Industry.

The peak body Financial Counselling Australia (FCA) said direct debits could be hard to cancel, and could result in financial hardship for people.

It also stated it was a massive problem that has been known for decades, and remains unresolved despite numerous reports and industry recommendations.

Each month across the country, more than 50 million direct-debit transactions are processed. In reality, direct debits should be easy to cancel and under the banking code, banks must act on a request.

However, FCA said banks often told their customers some direct debits could not be cancelled.

Executive director Fiona Guthrie said failing to cancel these transactions could have devastating consequences for individuals.

"When a person is in financial difficulty, they need to be able to prioritise basic living expenses and shelter," Ms Guthrie said.

"A direct debit that cannot be cancelled can mean a person pays their full credit card payment at the exclusion of food."

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The submission states that even when a direct debit was clearly cancelled or unauthorised, it was very difficult to get the money back, often taking weeks.

"It is difficult to understand why money can be taken so quickly and yet returned so slowly," the FCA submission reads.

Last year, a Banking Code Compliance Monitoring Committee report found the practice was common and ongoing.

The committee first highlighted the issue in 2008, when mystery shopping research showed in 80 per cent of cases, bank staff were providing incorrect advice about cancelling a direct debit.

Further research in 2010 and 2011 found compliance had only slightly improved.

Bigger penalties and greater powers needed

Financial counsellors are not alone in their frustrations with the slow pace of reform in the banking and finance sector.

The Consumer Action Law Centre has criticised delays in regulatory changes to stop more Australians getting caught up in banking misconduct.

It has highlighted the four years it took to ban unsolicited offers for credit card limits, and the seven years of inaction to deal with debt management firms — called "debt vultures" — in its final submission to the royal commission.

"These delays can allow poor business models and practices becoming embedded," the Law Centre stated in its submission.

In a review of 37 actions taken by the Australian Securities and Investment Commission (ASIC) on consumer credit and insurance from 2014, the centre found it took five years on average for penalties to be enforced.

The Law Centre said ASIC needed greater powers to be "a proactive regulator that responds promptly to evidence of misconduct".

In one of its submission to the royal commission, it points to the weakness of penalties when they are much lower than the bank's profit margins, and which can be "factored in simply as the cost of doing business".

A review by ASIC proposed criminal fines of $9.45 million, or 10 per cent of annual turnover.

"Increased maximum penalties for contravening financial services are essential," the Law Centre has told the royal commission.