WHERE payday lenders lead, other businesses are following warns Jeff Salway
They were once a favoured weapon of unscrupulous payday lenders – but now they’re being used by a range of companies to lock unsuspecting Scots into subscriptions and contracts they don’t want.
Continuous payment authorities (CPAs) work like direct debits and standing orders by allowing firms to take recurring payments from customers.
When used fairly they are a useful mechanism to ensure payments for anything from magazine subscriptions to mobile phone contracts are made on time.
But CPAs don’t offer the protection offered by direct debits, such as refunds in the event of mistakes or unauthorised payments, while the amount taken can be changed without the customer being told.
This relative lack of restrictions made them popular with payday loan firms, before rules taking effect in April 2014 restricted the number of times they could use them.
They remain widely used, however – and more so than most people realise. More than two million Scots have set up a CPA in the last year, according to a new report from Citizens Advice Scotland (CAS). “Many people are being lured by online companies into signing up for long-term subscriptions, often without even realising it. We’ve all seen the pop-up adverts for a ‘free trial’ (e.g. of a healthcare product, like slimming pills). Unfortunately in many cases these end up being anything but free,” explained Fraser Sutherland, consumer spokesman for CAS.
CPAs often become active after someone has used their direct debit card to sign up for a free trial or subscription without checking the terms and conditions before ticking the box. Agreeing to those terms and conditions may allow the firm to take recurring payments from the account, and with the freedom to vary the amount taken.
The risk to customers is exacerbated by the fact that the creditor can’t see your account balance (unless it’s your bank).
“This means they will draw out the money they are owed if it’s possible, which can leave someone in financial difficulty absolutely destitute,” said James Stewart, public affairs officer at StepChange Debt Charity Scotland.
“By taking the money automatically, there is no consideration of whether it is affordable. For instance, if a credit card payment is due by a certain date, it might not arrive or it might be late (or it might be the minimum), meaning there are no warning signs of financial difficulty.”
Even if you do know you’re in a CPA, cancelling it can be difficult. More than 80,000 Scots that have tried cancelling a CPA over the past year have been turned down, even though they have a legal right to cancel.
Payment service rules mean banks and building societies must cancel any regular payment at the customer’s request, whether it’s a CPA, direct debit or standing order. But a 2013 review by the Financial Conduct Authority (FCA) found that some were refusing to do so, particularly on payday loans.
It issued a statement reminding banks and building societies to cancel recurring payments when asked to do so by the customer. Payments that go through following cancellation by the customer should be refunded immediately, said the regulator.
Some banks and building societies are still falling short on this, said CAS.
“We want it to be easier for consumers to cancel recurring payments and we have called on the FCA to make sure that both traders and banks play fair,” said Sutherland.
A spokeswoman for the FCA said that “we are aware of the issue and are considering it”.
CPAs are also being used increasingly by insurance firms to take payments on renewals, according to the Financial Services Consumer Panel. It said that where a CPA is being used in the automatic renewal of a contract, the renewal notice “should be very clear on the payment method and the date payment will be taken, and should also provide the card details used to set up the CPA”.
CPAs are useful when used properly, said Stewart. “But it is down the FCA to ensure that lenders use them responsibly and that rules are being followed. Lenders should also provide appropriate financial assistance to those in difficulty.”
There are steps you can take to avoid being caught out by CPAs. The starter is to know what you’re signing up for before passing on your bank details, which may well involve checking the small print. If you’re already making payments through a CPA it’s worth agreeing or checking the exact amount taken, the dates and the frequency.
“Our advice to anyone who uses the internet is to always read the small-print carefully so you know what you are signing up to. And also, check your bank account and credit card statements regularly,” said Sutherland.