Recently there has been much made in the press of the FCA's new tougher rules for pay day lenders and other firms offering high cost short term credit, some of which came in to force from 1 July 2014. One of those restrictions relates to the use of continuous payment authorities (CPAs) but it occurred to me that CPAs are used beyond pay day loan companies and many of us may have set up a CPA without even realising we have done so.
So what is a Continuous Payment Authority
Often referred to as a "recurring payment" it is set up by giving the long number on your credit or debit card to pay for something on a regular basis (such as a gym membership or online subscription) as opposed to giving your account number or sort code and setting up a direct debit or standing order. It can be done over the phone, in person or on line and so there is often no written evidence of the authority being set up.
Why is there an issue?
Unlike a direct debit which has a guarantee about the date or the amount of the payment, a CPA allows the company to take the money on the date they choose and it also gives them flexibility as to the amount taken. The payments don't show as a continuous or recurring payment on your statement so they can be difficult to spot.
The cancellation process is regulated by the Payment Services Regulations 2009 which state that the Bank must cancel if instructed to do so by the customer - however the FCA carried out a review in 2013 which highlighted that wasn't happening in practice and so they got the largest banks and mutuals to commit to that process. If the Bank allows a payment to go through in error, the customer is to be refunded immediately. So if you want to cancel a CPA you just need to tell your bank to stop the payment being taken (but keep in mind if you have a credit agreement with the company you need to set up another method of making the payments).
What do the new rules say?
The issue from the FCA's perspective is that pay day lenders would often use the CPA as a method of debt collection with the result that customers could be left with very little income for the remainder of the month. Often, customers are unaware of the fact that a CPA has even been set up. Now, Firms cannot exercise rights under a CPA unless they have explained its use to the customer and the amount of the payment must be clearly set out in any credit agreement. Firms must also exercise rights in a manner which is reasonable, proportionate and not excessive, and use appropriate 'forbearance' if they become aware that a customer may be experiencing financial difficulties. Those who provide high cost short term credit are now limited to two unsuccessful attempts to use a CPA and then there are strict requirements around resetting the CPA so the customer is clear what amount might be taken and when.
Whilst the new Rules might not affect us all, next time you look at your bank statement you might want to consider whether there are any rogue payments being taken from your account that could actually be a CPA that needs to be cancelled!