When you take out a payday loan, you are normally required to supply your bank details so they can send you the money. You would also provide your debit card details so payment can be taken on the due date.
This agreement to debit your debit card is known as a Continuous Payment Authority.
What the heck is a Continuous Payment Authority?
Continuous Payment Authority works a bit like a direct debit. However this type of payment arrangement can be difficult to cancel and you also don’t have the same guarantees that you do with a direct debit. For example if the amount or the payment date is changed there isn’t much you can do about it. In other words a company can take as much as they like without giving you any notice.
This type of payment arrangement is very common when you take out a payday loan for the above reasons, especially if you fail to repay it on time. Typically what can happen is a payday lender will take as much as they can from your bank account to cover their debt. Often this leaves people without any money to live on for the month, and is a truly awful situation to find yourself in.
What does the FSA have to say on Continuous Payment Authority?
They say that under the Payment Services Regulations, a customer has a right to cancel a continuous payment authority by contacting their bank or card issuer.
After telling your bank that you are cancelling the continuous payment authority, any attempt to take the payment becomes an unauthorised transaction and your bank or card issuer shouldn’t honour any further payments. Should your bank or card issuer make payment, they are in breach of the Payment Services Regulations and you are entitled to an immediate refund. If you made payment by credit card then the refund may take slightly longer to process.
The banks have now accepted the above obligations but the technology is not yet available to allow the banks to stop the payment should your payday lender request it. However with that being said, the bank or card issuer must refund the transaction back to your account.
There isn’t currently a time frame as to when this technology will become available. Hopefully it will be soon though.
What can you do about continuous payment authority then?
So let’s say you have a payday loan and the company you owe the money to will be taking payment soon. Let’s say you don’t have enough money to pay the payday loan. What do you do? Well that depends on how long it is until the payment is due.
The day before payment is due
You should speak to your bank by the end of the working day at the very latest. If there isn’t enough time to do this because for example the payment is due on the same day, then it is highly unlikely you will be able to stop the payment on time.
1-5 Working days before the payment is due
Get in touch with your bank by phone and e-mail if you can. Make your request to cancel the continuous payment authority and make sure that the customer service advisor notes this on your account. Get the advisor’s name and make a note of the date and time you called.
It is also a good idea to contact the lender, either by phone or e-mail or both. You should let them know that you have withdrawn permission from the bank for the continuous payment authority. If you choose to phone them, make a note of the advisor’s name as well as the date and the time you called.
There is an Example Cancel Continuous Payment Letter Template on this blog.
5 or more working days before payment is due
You can write to your bank to ask them to cancel the continuous payment authority. I would recommend sending the letter recorded delivery so you can prove it got there. Make sure you keep a copy of the proof of postage along with the proof of delivery, once it is online.
As above you can use the Continuous Payment Authority Template Letter and send that to your bank.
Should your bank refuse to cancel the Continuous Payment Authority, you can make an official complaint. Should you not receive a satisfactory response, you are with your rights to refer your complaint to the Financial Ombudsman Service.
Avoiding Recurring Payments on a Payday Loan
- Make your payments manually. For example via Internet Banking.
- Change your payment method to Direct Debit.
- Use a prepaid debit card instead.
- Move to another bank. That way you can be safe in the knowledge that the payday lender does not have your card details.
Getting help with your Payday Loan Debt
If you struggling with payday loan debt you are not alone, see the links below to help you get started.