CPAs are similar to Direct Debits – as they allow the company to control the amount taken – but CPAs don't have the same guarantees and are set up using a debit or credit card rather than a bank account number and sort code. Some payday lenders even ask for a second card, in case payment from the first is rejected.
Continuous Payment Authorities (CPAs) are a common mechanism used by a variety of businesses to take recurring payments from customers. For example, they are used by many publishers to take annual payments for magazine subscriptions. They are also used by pretty much every payday lender to collect monthly repayments of loans.
And did you know that a CPA allows payments to be taken without needing express authorisation every time?
When CPA goes wrong
On the 28th of September last year a payday loan company called Mr Lender took multiple payments from borrowers after a system error.
A small percentage of borrowers that were in 'repayment plan status' had their debit cards charged multiple times for their next payment instead of just once.
This left borrowers hundreds of pounds out of pocket, with victims not sure who to claim the money back from and what their rights were.
Mr Lender told us the glitch was not directly linked to CPAs as it was a system error that caused the problem. But the CPA setup clearly enabled multiple payments to be taken with no questions asked from the banks.
According to the company, 90% of borrowers received the refund within the first 24 hours. But some unlucky borrowers had to wait for up to four days for their money back.
A spokesperson from Mr Lender claimed it reimbursed anyone that incurred additional costs from the glitch through bank charges, offered a 10% discount on remaining balances and in some cases sent out vouchers as compensation.
The dangers of CPA
Usually a Direct Debit guarantee means you will get refunded by your bank should the bank or company make a mistake. This kind of protection doesn't exist for CPAs.
The Financial Services Authority (FSA) says banks and building societies are required to refund an unauthorised transaction immediately. But in the case of a CPA redress isn't due from the bank and only from the company taking the money.
Una Farrell from the StepChange Debt Charity
outlined that the correct procedure would be for the lender to refund a customer within hours, to pay for the charges incurred and for compensation to be available for the stressed caused.
In the case of Mr Lender it did the right thing, although the small percentage that had to wait for three to four days may not agree it was the best response possible.
Other payday lenders have been found to have abused the system by repeatedly requesting money from customers' bank accounts regardless of whether they had attempted to renegotiate payment dates or has other priority debts.
The OFT is currently concluding an investigation into several firms over "aggressive debt collection practices". There is no suggestion that Mr Lender has adopted these practices or is under investigation.
In December, the Office of Fair Trading (OFT) reminded payday lenders that they had to make it clearer to customers that they were signing up to a CPA and how they could cancel it. You can read more on this in Continuous Payment Authority: your rights
How to cancel a CPA and avoid using one
You can cancel a CPA either by contacting the company taking the payment, or by contacting your bank or card provider; ideally you should do both. The OFT reiterated this last December, saying: "The bank or card provider has no right to insist that you agree this first with the company taking the payments, although it is good practice to also notify the company."
If you'd rather not sign up to a CPA, here are some alternative methods of payment from the StepChange Debt Charity
If the company offers Direct Debit, use this instead. Direct Debits are much easier to cancel and if there's an error of any kind the bank should refund you immediately. However, most payday lenders won't offer this option.
Set up manual payments. Although it requires you to remember to make the payment each month it's much safer.
Set up a Standing Order. These are easy to set up and cancel. It involves a set amount that can only be altered by you leaving you in complete control.
Use a prepaid card. These cards can be used for a CPA and can be topped up with the exact amount you need to repay.
- 1. Retailer refunds
<span style="font-size: 10pt; line-height: 12pt;">The law states that any goods you buy from a UK retailer should be of satisfactory quality, as described, fit for purpose and last a reasonable amount of time.</span></p>
<span style="font-size: 10pt; line-height: 12pt;">This applies even if you buy items in a sale or with a discount voucher. You may have to insist on these rights being respected, though.</span></p>
<span style="font-size: 10pt; line-height: 12pt;">Useful phrases to use when you want to show you mean business include, "according to the Sale of Goods Act 1979" and, if it's a service, "according to the Supply of Goods and Services Act 1982".</span></p>
- 2. Receipts
<span style="font-size: 10pt; line-height: 12pt;">Some shops will allow you to exchange goods without a receipt, but they can refuse to should they wish.</span></p>
<span style="font-size: 10pt; line-height: 12pt;">If the goods are faulty, however, another proof of purchase such as a bank statement should work just as well.</span></p>
- 3. Refund timeframes
<span style="font-size: 10pt; line-height: 12pt;">If you attempt to return goods within four weeks of the purchase, your chances of getting a full refund are much higher as you can argue that you have not "accepted" them.</span></p>
After this point, you can only really expect an exchange, repair or part-refund.</p>
- 4. Credit card refunds
<span style="font-size: 10pt; line-height: 12pt;">The updated Consumer Credit Act states that card companies are jointly and severally liable for credit card purchases of between £100 and £60,260 (whether or not you paid just a deposit or the whole amount on your card).</span></p>
Anyone spending between these amounts on their credit card is therefore protected if the retailer or service provider goes bust, their online shopping never arrives or the items in question are faulty or not as described.</p>
- 5. Financial Ombudsman Service (FOS) compensation
<span style="font-size: 10pt; line-height: 12pt;">The FOS settles disputes between financial companies such as banks and consumers.</span></p>
If a financial organisation rejects a complaint you make about its services, you can therefore escalate that complaint to the FOS - as long as you have given the company in question at least eight weeks to respond.</p>
<span style="font-size: 10pt; line-height: 12pt;">The FOS will then investigate the case, and could force the company to offer you compensation should it see fit.</span></p>
- 5. Contact for correction
<p>Start by writing to the agency asking it to either remove or change the entry that you think is wrong. It will investigate the matter and find out whether you have been the victim of ID theft or a bank's mistake.</p>
<p>Within 28 days from receipt of your letter the agency should tell you how the bank has responded. If the bank agrees to change the entry, they will authorise the agency to update their records. They should also send updates to any other credit reference agencies they use.</p>
<p>You can also contact your lender directly to query a mistake. If the lender agrees to the discrepancy, ask them to confirm this in writing on their letterhead and send a copy to the agency, asking them to update your file.</p>
- 6. Bailiffs
<span style="font-size: 10pt; line-height: 12pt;">Bailiffs are allowed to take some of your belongings to sell on to cover certain debts, including unpaid Council Tax and parking fines.</span></p>
They can, for example, take so-called luxury items such as TVs or games consoles. However, they cannot take essentials such as fridges or clothes.</p>
What's more, they can only generally enter your home to take your stuff if you leave a door or window open or invite them in.</p>
You are therefore within your rights to refuse them access and to ask for related documents such as proof of their identity. If they try to force their way in, you can also call the police to stop them.</p>
- 7. Debt collectors
<span style="font-size: 10pt; line-height: 12pt;">Private sector debt collectors do not have the same powers as bailiffs, whatever they tell you.</span></p>
They cannot, for example, enter your home and take your possessions in lieu of payment.</p>
<span style="font-size: 10pt; line-height: 12pt;">In fact, they can only write, phone, or visit your home to talk to you about paying back the debt. As with bailiffs, you can also call the police if you feel physically threatened.</span></p>
- 9. Online/phone purchases
<span style="font-size: 10pt; line-height: 12pt;">Thanks to the Distance Selling Regulations, you actually have more rights buying online or by phone than on the High Street.</span></p>
You can, for example, send most goods back within a week, for a full refund (including outward delivery costs), even if there's no fault.</p>
<span style="font-size: 10pt; line-height: 12pt;">You will usually need to pay for the return delivery, though. The seller must then refund you within 30 days.</span></p>
- 10. Cooling off periods
<span style="font-size: 10pt; line-height: 12pt;">We enter into contracts all the time, whether it be to join a gym, switch energy supplier or take out a loan.</span></p>
In most cases, once you've signed a contract, you are legally bound by it. In some situations, however, you have the right to cancel it within a certain timeframe.</p>
Credit agreements, for example, can be cancelled within 14 days. And online retailers must tell you about your cancellation rights for any contract made up to stand up legally.</p>