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What is a continuous payment authority?
If you're comparing payday loans, you might have come across the term "continuous payment authority". Here's everything you need to know.
A continuous payment authority (CPA) is a type of recurring payment that is often used to pay for subscriptions, memberships and loans. CPAs work differently to direct debits and standing orders, so it’s important to understand more about them and how you can cancel them.
What is a continuous payment authority?
A continuous payment authority instructs a business to take money from your debit card or credit card when money is owed.
The CPA permits the company to take fixed or varying amounts whenever it believes you owe it – this doesn’t have to be on a set date.
A CPA is often used to pay for memberships or subscription services, such as Netflix or Amazon Prime. But it’s also used for short term loans, such as payday loans.
How are CPAs set up?
When you set up a CPA with a business, you’ll be asked to provide the 16-digit number on the front of your debit or credit card. You can do this over the phone, online or face to face.
By giving the provider this information, you’re authorising them to take payments from your account. Your CPA will continue until you contact the company or your card provider to cancel it.
How is it different from a direct debit or standing order?
A direct debit or standing order is an instruction you make to your bank, while a CPA is agreed between you and a business. With a direct debit or standing order, funds are taken or sent directly from your bank account. With a CPA, payments are taken from your card and are processed by the card network – usually Visa or Mastercard.
A direct debit takes a couple of days to set up, and you’ll need to provide the company with your bank account number and sort coder. An agreed amount (fixed or variable) will be taken from your account regularly, typically on a set date. Direct debits are often used to pay bills, such as energy, broadband and council tax, and the company must notify you in advance of any changes. Standing orders tend to be used to pay rent or move money to a savings account. They are usually for a fixed amount, and you can set them up yourself.
A CPA can be set up immediately on a debit or credit card with just the 16-digit card number. The company you agree the CPA with will tell you what they’ll take from your account and when, but it has the authority to take varying amounts as and when it feels it is owed.
If a direct debit fails to go through, you might pay a fine to your bank. This isn’t the case for a CPA. However, you may incur a fine from the business that you agreed with on the CPA.
Direct debits also offer customers a degree of protection through the Direct Debit Guarantee. You can get an immediate refund in the case of an error. The Direct Debit Guarantee does not apply to CPAs.
Crucially, if you switch bank accounts, the Current Account Switch Service means that all your direct debits and standing orders are switched as well, but this does not apply to CPAs. If you wish to bring a CPA over to a new account, contact the business that you have the CPA with to cancel the old CPA and set up a new one.
How do I spot a CPA on my bank statement?
CPAs can be much harder to spot on your bank or credit card statement. Some banks might highlight them in a dedicated section on your statement, but others won’t. However, if you have any payments going out for memberships, subscriptions or loans, it’s likely they will be CPAs. If you’re unsure, contact the company in question to ask.
Common uses of a CPA
CPAs are often used to pay for:
- Gym memberships
- Streaming services
- Magazine and website subscriptions
- Debt collection agencies
- Annual car insurance payments
- Payday loans
CPAs and payday loans
Payday loans are usually set up via a CPA. The speed of set-up is handy for these short term loan models. Lenders like the authority it affords them in collecting repayments.
The Financial Conduct Authority (FCA) has introduced regulations to improve the CPA experience after unscrupulous payday lenders were found to be taking money whenever they saw fit.
The regulations state that payday lenders are limited to 2 unsuccessful attempts to use a CPA to take repayment and cannot use a CPA to take a part-payment. Customers also have the right to cancel the CPA if they have agreed on an alternative method of paying the lender back.
If you’re about to take out a payday or short term instalment loan, you should compare lenders first. You can use the table below to estimate the cost of the loan that you have in mind with a range of lenders.
How do I cancel a continuous payment authority?
If you want to cancel a CPA, you should always contact the business you set it up with first. However, if you can’t contact the business or if the department refuses to cancel the CPA, you can ask your bank to cancel the CPA.
Banks must cancel them for you. If a bank fails to cancel a CPA when you ask, it must refund any subsequent charges made to you due to this error.
If you cancel a CPA that’s in place to repay a loan, you need to arrange an alternative method of payment. If you don’t, you could default on your loan, risking a fee, additional interest and damage to your credit score.
Don’t forget that cancelling a CPA won’t stop a business from pursuing you for money if they believe they’re owed it, even if this means taking legal action against you.
Benefits and risks of a CPA
- Quick and easy to set up
- Allows for flexible payments
- Not always easy to cancel
- You’re effectively giving a company permission to take a payment whenever it wants to
- If you switch accounts or cards, CPAs won’t automatically move over
- It can be difficult to get a refund if a mistake is made
What are the alternatives to a continuous payment authority?
If you’re uncomfortable setting up a CPA, you could consider the following alternatives:
- Direct debit. A growing number of businesses now accept direct debits as a means to repay a short-term loan. Even if you were previously told you had no choice but to set up a CPA, this might have since changed.
- Manual payments. Ask if the company will consider letting you pay your charges manually, either through standing orders or bank transfers. It’s more of a hassle for you, but you may prefer not to give a lender free rein. Just remember to make your payments on time. Otherwise, you could be charged.
- Use a prepaid card. You can set up a CPA on some prepaid cards, although some lenders don’t allow this. This may be more comfortable for you as the business won’t take more money than what is loaded onto the card.
Bottom line
Consumers were often warned away from CPAs in the past due to the ruthless debt-claiming tactics of unscrupulous payday lenders. However, the new FCA regulations have helped to put a stop to this. There are some advantages to having your payday loan repaid through a CPA – such as the speed of set-up – that make it a favourable option. But overall, if you can opt for a direct debit instead, you’ll have more control over what goes out and when.
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