The advice in the article is updated regularly. Scroll to the bottom of the article to see the latest on new rules on continuous payment authorities (CPAs) as they are launched. If you’re confused about your rights with CPAs, please get in touch with us.
When you give your credit or debit card details to a company and authorise them to take regular payments it’s known as a ‘recurring transaction’ or ‘continuous payment authority’ (CPA).
They work like a direct debits, but can be very difficult to cancel and they don’t offer the same guarantee if the amount or payment date changes. This means companies can take as much as they like without giving you notice.
They’re sometimes used for gym memberships and magazine subscriptions but we see them most commonly for payday loan repayments.
We’ve come across many cases where payday loan companies have refused to stop taking payments, even if the client is struggling and has already been to us for help.
We’ve also come across cases where the client’s bank or card provider has said that they’re unable to prevent the payments going through. This leaves many of our clients in financial hardship, and potentially means they could be repaying their payday loan instead of their priority debts.
Today we look at what this means for someone who’s struggling to pay back a payday loan.
Cancelling continuous payment authorities
You are within your rights to cancel a CPA with your bank either by email and phone if you’re unable to cover it. When you call your bank, ask the advisor to record your instruction to cancel. Don’t forget to ask for their name and make a note of the date and time of your call. Some banks may pass you to a different department to cancel CPA.
It’s also worth your while to get in touch with the payday lender by telephone or emailing them a copy of our cancelling continuous payment authority template letter. This will make them aware that you’ve withdrawn your permission from the bank. Again, we advise that you keep a note of the time and date you speak to the payday lender as well as the advisor’s name.
If the bank refuses to cancel the payments you can make an official complaint. The bank will have to refund any CPA payments taken, and any charges or interest that were caused by the payments being taken after you’d cancelled them. If they don’t refund you or give you a satisfactory response you can refer your case to the Financial Ombudsman Service.
The deadline to cancel the CPA is close of business on the working day before payment is due e.g. if your payment is due out on Thursday, you have until (roughly) 5pm on Wednesday to cancel. Trying to cancel the CPA on the morning it’s due to go out is too late. We would still advise you to cancel any future payments to prevent further difficulty.
How to avoid recurring payments on a payday loan
It can be a tricky situation to get out of, so it’s sometimes best to try and avoid it all together. Here are some alternatives you can consider:
- Change to direct debit: If the company or lender has this facility then use this; direct debits are much easier to cancel and if there’s an error the bank should refund you immediately
- Pay manually: It could mean remembering to make the payment each month but it’s much safer
- Standing order: These are easy to set up and cancel because you’re in complete control.
- Prepaid cards: You top up these cards in advance much like a pay-as you-go phone. Read more about prepaid cards.
If you’re struggling to maintain payments on a payday loan or any other kind of debt, use our online counselling service Debt Remedy for free and impartial advice. We can look at all the options that might be available to you.
UPDATES (in chronological order):
Update 20th November 2012: The Office of Fair trading (OFT) is investigating several payday lenders over aggressive debt collection practices. They will also contact all 240 payday lenders highlighting their concerns over their methods. Some of these companies risk enforcement action.
Update 13th December 2012: The OFT have rules that all businesses must ensure that they fully meet their legal responsibilities when using CPAs, including that they:
- are fully transparent about terms before a consumer signs up to a CPA arrangement
- ensure the consumer has given informed consent to the use of a CPA, and do not use ‘opt out’ provisions or other means to automatically assume the consumer has given consent
- provide adequate notice of any changes to the scope of the agreed authority, such as the amount or timing of payments
- provide clear and prominent information on how to cancel a CPA.
1 July 2014 – new rules from the Financial Conduct Authority (FCA) means that payday loan companies:
- cannot rollover an outstanding payday loan balance more than twice
- must send the debtor an information sheet with contact details for various debt advice organisations. A copy of this information sheet can be seen here
- cannot make more than two attempts to deduct money from a debtor’s bank account by means of Continuous Payment Authority (CPA) unless a rollover has been agreed.
- Must now include a prominent risk warning on all financial promotions.
9th February 2015: Changes have been made to simplify the process a customer needs to follow in order to cancel a continuous payment authority (CPA):
You have the right to cancel your CPA with your bank either by telephone or email. This right is effective up until close of business on the working day before the CPA is due.
We strongly advise that you record any important details such as the name of the bank advisor you speak to as well as the date and time of the call. If the bank refuses to cancel the payments you can make an official complaint, and the bank is obliged to refund any payments taken by CPA and any charges or interest that were incurred as a result.