The continuous payment authority (CPA) is a lender’s dream – and very often a borrower’s nightmare. The CPA is the mechanism used by a bank or building society to withdraw money from your bank account without having to seek permission each time.
CPA payments are taken on a regular basis, subject to agreed terms. But a CPA is not the same as a direct debit or standing order. These are much more transparent and everyone knows they are easy to cancel. In other words, you are in charge.
With CPAs, however, the lender is in control. CPAs are widely used for things like gym membership, mobile phone services, magazine subscriptions and – more topically – for payday loans.
At Citizens Advice we often see cases of people who have taken out a loan, or some kind of membership or subscription, and have ticked a box to consent to pay by CPA, without realising the implications. The problem comes when the business takes money from your account without your permission – often without even notifying you – and this pushes you into overdraft, leaving you with no money for food, bills and other payments but with a whole load of new charges to pay instead.
The good news is that the Office of Fair Trading (OFT) recently published Principles for Use of CPAs. We welcome these new guidelines and hope they will make the system fairer, working more in the interests of the customer.
But as with all such codes, they will only work if the consumer is made aware of them and is able to stand up for their rights.
The new OFT principles include the following points – which themselves stand as a good indication of the sort of unfortunate CPA practices that have too often been happening before now:
l Before taking out a contract in which a CPA is to be used the customer should be advised and should agree to the amounts to be taken from their account, the timing and frequency of the payment dates and the account to be debited.
l The customer must positively indicate their consent to the use of CPA – and if offered a free trial, after which payments will be taken, the customer should be asked to agree to the actual liability before any payments are taken.
l All terms should be written in plain language and if there is a cancellation right the customer should be given clear advice on how to cancel.
l Any changes to the agreed authority, such as the timing of payments, should be notified to the customer before they take effect.
l Businesses should ensure that customers are aware of any statutory or contractual right to cancel the CPA or to cancel automatic renewal terms.
l Requests for cancellation should be responded to promptly and no obstacles put in the way of cancelling and if the customer cancels the CPA the business should stop attempting to take money from the customer’s account. No fee or penalty should be charged for terminating a CPA.
l Customers should not be misled regarding their rights to cancel, and they should not be told that they are required to contact the business before (or instead of) the payment service provider.
As with so many issues, the best way to ensure you get a fair deal is before you actually sign the contract. Always read the small print, and know what you are signing up to every time you tick a box or give your bank details.
But if you have already taken out a CPA and want help to cancel it, or with any other aspect of your finances, the Scottish CAB is now working with the Money Advice Service to offer free, impartial and confidential help. Visit your local bureau or see www.adviceguide.org.uk for more information.
l Mike Holmyard is a member of the Money Advice team at Citizens Advice Scotland