The Office of Fair Trading (OFT) has warned businesses about misusing continuous payment authorities (CPAs) amid fears that customers don't always know exactly what they are signing up to.
Once agreed by a customer, a CPA allows a business to take a series of payments using a their debit card or credit card without having to seek express authorisation for every payment.
CPAs are often used to collect repayments for payday loans as well as services including vehicle breakdown, insurance, gym membership, online dating, and magazine subscriptions.
But the OFT says customers are not always being made aware of what they are signing up to and may be misled about their rights to cancel.
What businesses need to do
The OFT has issued a set of principles to businesses using CPAs to ensure they fully meet their legal responsibilities when using this method of payment.
The OFT says businesses must:
- Be 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.
Consumers confused about CPAs
We reported earlier this year that consumers were often unwittingly signing up to CPAs without fully realising what they were agreeing too.
In many cases simply ticking a box online commits customers to a CPA – and often for a service they didn’t ask for or don’t need.
It's not just traders that have been in trouble on this issue. Banks have also been caught giving wrong advice.
A Consumer Focus mystery shopping survey of nine major banks carried out earlier this year found almost half of advisers (44%) gave the wrong answer or couldn't give an answer when asked how to cancel a CPA.
Some said that the payment could only be cancelled by the company receiving it – but this isn’t the case.
How do you cancel a CPA?
Many consumers mistakenly think a CPA is like a direct debit or standing order – but it’s quite different.
With a CPA payment is taken via continuous or recurring payment authority on either a debit or credit card. Customers give a company their card details and authorise it to take regular payments from their account.
With a direct debit, on the other hand, you give a business your sort code and account number for it to take payments. These can be cancelled much more easily by simply deleting the direct debit on online banking or calling your bank.
Earlier this year the Financial Services Authority (FSA) issued some updated guidance to set the record straight. It said: "In most cases, regular payments can be cancelled by telling the company taking the payments. However, you have the right to cancel them directly with your bank or card issuer by telling it that you have stopped permission for the payments.
"Your bank or card issuer must then stop them – it has no right to insist that you agree this first with the company taking the payments."
CPAs and payday loans
One area where CPAs are often used, and regularly abused, is payday loans.
The OFT says it often sees payday loan companies mis-using CPAs and adopting aggressive debt collection tactics.
It has launched ‘formal investigations’ into several payday lenders due to concerns about their debt collection practices – and CPAs are a key part of the investigation.
Citizens’ Advice has also raised concerns about payday lenders’ use of CPAs. It says that in some situations payday loan companies repeatedly request money from customers’ bank accounts regardless of whether the customers has attempted to renegotiate payment dates or has other priority debts. In some cases this leaves customers without money for their mortgage, rent or other living expenses.
Citizens Advice also says payday lenders often take payments without notice and for seemingly random amounts – ranging from numerous small amounts to a significant sum – which cause significant problems particularly when the payments empty a consumer’s bank account.
have you had any issues with CPAs? Let us know about your experiences in the comment box below.