You may not know it, but if you’ve ever signed up for a gym membership, a magazine subscription, or taken out a payday loan, then chances are you’ve been under a continuous payment authority.
Sounds intimidating, right?
If you haven’t heard of them before, that’s probably because they often go by less austere names, such as ‘guaranteed payment’, ‘recurring payment’ or ‘recurring transaction’.
A ‘recurring payment’ is only the same as a direct debit right?
Wrong.
Which is why the Financial Conduct Authority (FCA) has since advised all card issuers to end this misleading practice.
While Continuous Payment Authorities are increasingly important in our culture of streamlined, ease of use and ‘on-demand’ services, they can also cause problems for those who are vulnerable and struggling with payday loans.
In this article we’ll take a closer look at the CPA, how it differs from the direct debit and standing order, and how you can cancel one.
What is a Continuous Payment Authority (CPA)?
A continuous payment authority (CPA) is a regular payment where an individual gives a vendor permission to take money from a credit or debit account whenever the vendor thinks that money is owed. Continuous Payment Authorities are used most frequently by payday lenders.
How do Continuous Payment Authorities work?
With a Continuous Payment Authority (also sometimes referred to as a ‘recurring payment’), the company will ask for your debit or credit card details, usually the long number (16 digits) from the front of your debit or credit card and sometimes the CVV from the back.
This allows the vendor to collect variable amounts, change the amount or date of payments, all without asking customers for further authorisation.
Is a Continuous Payment Authority like a direct debit or standing order?
Though they serve much the same purpose – to make regular recurring payments for things like subscription services – continuous payment authorities are a little different from direct debits and standing orders.
Standing orders are the most easily distinguished. These give the customer complete control. They are responsible for setting it up, they choose the amount and the rate of payment. Standing orders only offer fixed payments at regular intervals.
The difference between a direct debit and a continuous payment authority is, however, a little more nuanced. The first difference – and the easiest way to tell if you’re signing up for a CPA or a direct debit – is the information that you will provide to the company. If you’re setting up a CPA, you must provide the 16 digit number from the front of your card. For direct debits, you will be asked to provide your bank details in the form of your sort code and account number.
Both CPAs and direct debits give authorisation for a business to take money regularly, the difference is whether this comes from their bank or their card.
In a CPA, you enter into a contract directly with the business. With a direct debit, your contract will be with the bank.
One major benefit of a direct debit over a CPA is that, under the former, you are covered by the Direct Debit Guarantee scheme. This means that you’ll be provided with a full and immediate refund if there is any error in processing a payment.
You won’t be entitled to the same level of protection in a CPA, though businesses may choose to offer the same benefits.
Are Continuous Payment Authorities a bad thing?
No, not at all.
Continuous Payment Authorities have benefits for businesses and customers alike.
With a CPA, the card payment request is either immediately authorised or rejected. This means that there’s no awkward reconciliation if the customer is unable to pay. Put simply, if a customer decides to take out a gym membership and use it on the same day, a CPA would either approve or reject the payment instantly, while a direct debit may fail a few days later, after the customer has already benefited from the use of their services.
CPAs are also used by many large reputable companies and facilitate the smooth operating of some of our most-loved services – take Transport for London’s automatic Oyster Card top ups and Netflix subscriptions, for example.
Because the payment instruction is with the business rather than the bank, cancelling a CPA is not always as straightforward. This may be a cause for concern if you are due to make a payment towards a payday loan that you cannot afford.
Under the old terms and conditions of a continuous payment authority, a payday lender was allowed to make unlimited attempts to take money from a bank account if the first attempt failed. If the initial claim for the full amount owed was refused, the lender could claim different amounts until a payment was authorised. However, lenders are now only permitted to make 2 attempts to obtain money from your account, and these can only be for the full payment amount due.
How to cancel a Continuous Payment Authority
You should be able to cancel by contacting the company responsible for taking the payments and asking them to stop, though sometimes the company may not always cooperate.
Until 2009, this was the only way to cancel a continuous payment authority. However, it is now possible to contact the bank and arrange for a cancellation this way.
You should be able to do this up until around 5pm on the last working day before the payment is due.
Arranging a refund of an unauthorised payment
If you cancelled a continuous payment authority before the close of business the previous day and a payment is still taken without your permission, you have the right to a refund of this amount, as well as any related charges that you may have incurred. This is known as an ‘unauthorised’ payment.
If the bank or building society ignores or declines your request for a refund, you should take your complaint to the Financial Ombudsman Service, which will provide free help to resolve disputes between lenders and their customers.
Cancelling a CPA payment to a payday loan company
If you are unable to make a payment towards a payday loan you should be entitled to cancel your CPA payment.
Unfortunately, because payday loans are still so easy to obtain, customers are likely to run into trouble with continuous payment authorities.
If you’re trying to cancel a CPA payment but you’re having issues, or you’ve got mounting debt and need advice, get in touch with Scottish Debt Expert for a free initial consultation now.
