Continuous payment authorities: clearing up the confusion

By Marianne Curphey

Have you ever set up a recurring payment for a gym membership, Internet services or magazine subscriptions? Then you may have a continuous payment authority (CPA) linked to your credit card.

CPAs can be a useful way to streamline your finances. However, there has been recent controversy over CPAs -- especially concerning the difficulties in cancelling them. Here's a guide to CPAs, how to use them, how to stop them -- and what your rights are.

Continuous payment confusion
CPAs are confusing for consumers, banks and advocacy groups alike. They fall under the category of automatic payments -- payments that are regularly withdrawn from your bank account or charged to your credit card. automatic-payment

CPAs are very closely related to direct debits, another form of automatic payment. With both CPAs and direct debits, according to the Financial Ombudsman Service, you allow a business to take payments from your account.

However, direct debits are covered by a bank guarantee scheme, which means that the business must let you know if it is changing the amount charged or the payment date, and give you a refund if there is an error. CPAs are not covered by this guarantee. Instead, the consumer has an agreement with the merchant, rather than with the bank.

Prior to 2009, consumers had to cancel CPAs directly with merchants --- rather than with their banks. That changed with the Payment Services Regulations of 2009, which gives consumers the right to cancel CPAs directly with their banks. However, many are unaware of the new rules, making the process of cancelling CPAs a bit murkier than cutting off a direct debit.

In fact, the Office of Fair Trading published what was criticized by consumer advocacy groups as misleading information that left consumers with the impression that only merchants could cancel CPAs. In January 2012, the Consumer Credit Counselling Service published a document to address these misconceptions.

Continuous payment controversy
Along with the confusion surrounding CPAs comes controversy. That's because, by their very nature, CPAs make it easy for consumers to forget that money is being charged to their cards.

Recently, consumer advocacy group Which? and various news outlets have been hearing from consumers who say that money has been charged to their cards for services that they no longer use -- and that these charges are difficult to cut off.

 "Unfortunately it seems some consumers may need to fight their corner to cancel a recurring payment," says Sarah Brooks, director of financial services at Consumer Focus.

Here are some common problems with CPAs:

  • CPA agreements are often set up over the phone or the internet, so there may be no paper record, according to the Financial Ombudsman Service.
  • If you cancel a credit card and open up a new one linked to the same bank account, the merchant can continue the CPA on that new card without the customer's permission, according to Consumer Focus.
  • Free trials (offers to try out a service or membership for free for a month) often involve setting up a CPA. As soon as that free month is over, customers get hit with a monthly charge (and mounting credit card debt and interest charges) if they fail to cancel the membership. The customers, who have likely already forgotten about the "free" trial, will be surprised to see these charges -- if they notice them at all.
  • Some customers might not be aware that they signed up for a CPA for repayments when taking out payday loans.

    "Some payments, for example to Payday Loan companies, can mount up quickly and get very expensive if they continue to be taken out of your bank account," says Una Farrell media relations manager for the Consumer Credit Counselling Service.

So what are my rights?
Despite any advice to the contrary, you can let your bank or credit card provider know by phone or in writing that you want a CPA cancelled. You don't have to tell the merchant, although it is a good idea to do so (and many will be cooperative). Consumer Focus recommends that consumers cancel the payments through whoever they bank with, while also advising the supplier of the service that the CPA is being cancelled.

Contrary to what some banks are telling consumers, you do have a right to cancel and if the bank tells you otherwise, then that information is wrong," Brooks says. "Any bank saying that they can't deal with the matter is going against guidance issued by the regulator, the Financial Services Authority."

Why would banks give incorrect information? The 2009 regulations are still relatively new, leaving many bank and building society employees unaware that banks can cancel CPAs. According to a May 2012 Consumer Focus survey, 28% of customers surveyed were told they must their query to the company that had set up the CPA. When Consumer Focus sent mystery shoppers to major banks (including Santander, Barclays and Lloyds), 44% of the customer service advisers couldn't answer questions about how to cancel CPAs.

"We believe that the banks need update their websites and leaflets so that consumers are clear on their rights on how to cancel one of these payments," Brooks says. "If consumers find they are getting nowhere with their bank, they can turn to the Financial Ombudsman Service."

Keep in mind: Although the bank or card issuer can take care of the CPA itself, customers may still have to go directly to the company that set up the CPA to sort out other issues -- like previous debts or money owed.

See related: 10 tips for using your first credit card, 6 things you need to know about overdrafts

Published: 30 May 2012