Cancelling A Continuous Payment Authority

3rd December 2012

Continuous payment authorities are future payments set to be taken directly from your debit or credit card. They may also be described as being “recurring payment authorities” or “recurring transactions”. The use of continuous payment authority collection methods has been especially popular with payday lenders.

There has been much controversy about these payment arrangements this year. Banks and service providers have often refused to cancel continuous payment authorities where the consumer requested that this should happen. This reality contrasts with the position of the Financial Services Authority that states consumers have the right to cancel any payment that is due to leave their account.

This issue may be especially important for individuals taking debt advice with a view to going ahead with trust deeds in Scotland or any other particular debt solutions. The adviser will commonly inform them that their available money should be focussed on “priority debts” such as their mortgage, rent, council tax, or utility bills. This may become impossible if another party (such as a payday lender) uses a continuous payment authority (CPA) to empty their bank account.

When struggling under a burden of debt people often turn to payday loans in an attempt to manage their money from month to month. The excessive interest costs will typically lead to the situation worsening which may encourage an individual to obtain debt or trust deed advice for the first time.

When they do take advice there may be one or more continuous payment authorities in place with payday lenders that will result in significant sums of money being drawn from their account in the future. This might leave the individual totally unable to pay a more important bill or to fund their chosen debt solution.

The Office of Fair Trading has now clarified how companies that use continuous payment authority collection methods should act in such circumstances:

  1. Seeking to unfairly discourage or prevent an individual from cancelling a continuous payment authority is not allowed.

  2. Lenders must not use a CPA if there is good reason to believe that there will not be enough money in the account (for example if a debtor or adviser informed them of this).

  3. Lenders must not use a CPA if they believe doing so would deprive the consumer of funds needed for priority expenditure on essentials.

If you’re advised to cancel continuous payment authorities, perhaps by a debt or trust deed adviser, the following information and suggestions may help you:

  1. You have until the close of business the day before the payment is due to cancel the payment.

  2. You can cancel the payment with the lender or your bank.

  3. You may wish to inform the lender that you are receiving debt advice and that repayment proposals will follow soon. Under the OFT rules this should further deter them from taking the payment

  4. Make it clear to the lender that the continuous payment authority must not be used in any circumstances as the money is required for priority debts or essential expenditure.

The FSA informed the BBC that “if the customer withdraws their permission for money to be taken, any further payment would be unauthorised, and would have to be reimbursed to the customer by the bank”. This is an added level of protection, but the interim inconvenience while waiting for the funds to be returned means that prevention (by effectively cancelling authority for the payment to be taken) will be better than cure.

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