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Payday Loans: Continuous Payment Authority (CPA)

CPA is very similar to direct debit, which is used for payments such as electricity or gas expenses. Under direct debit, you authorise your service providers to deduct their monthly fees directly from your bank account.

For payday loans or other financial services, CPA authorises a lender or a broker to withdraw money from your credit or debit card without taking your permission before each withdrawal. Of course, you need to agree for this payment when you sign up for the service. But beyond the first time, lenders can take money from your account whenever they want to.

If there is very little money in your account, CPA poses a huge risk, because if the payday lender takes away all of your balance, you will not be left with any cash for essential expenses. Sometimes if the full amount is not available, the payday lender will make multiple attempts and withdraw small amounts until they recover the full amount.

New rules limiting the number of CPAs

The new rules state that lenders can only make two unsuccessful attempts at using a CPA to reclaim a repayment, and then they will be expected to engage with the borrower to find out what is going wrong. They will not be allowed to attempt a partial collection. They will also be prevented from rolling over loans more than twice, and obliged to undertake more rigorous affordability checks. If a borrower asks to roll over a loan he or she must be given details of sources of free debt advice.

Spotting CPAs on your account

At the time of taking a payday loan, the lender asks for a 16-digit debit or credit card number, which will be used for CPAs. This is a bit different from direct debit where you need to give your bank account number and sort code.

One of the challenges with CPAs is they are not separately mentioned as a recurring payment on your statements. To detect CPAs, you should check your debit and credit card statements for any unusual withdrawals. If such withdrawals are not clearly mentioned as direct debits or standing orders, then these are continuous payment authorities (CPA).

Alternatives to a continuous payment authority

If you're uncomfortable setting up a continuous payment authority, you may wish to consider these alternatives:

  • Direct debit - A growing number of businesses now accept direct debits as means to repay a short-term loan. Even if, in the past, you were told you had no choice but to set up a CPA, this may well have changed
  • Manual payments - Ask if the company will consider letting you pay your charges manually, either through standing order or bank transfers. It's more of a hassle for you, but you may prefer not to give a lender free rein
  • Use a prepaid card - You can set up a CPA on some prepaid cards, although some lenders don't allow this. This might be a more comfortable option for you, as the business won't be able to take more money than what is loaded onto the card

Differences between a CPA and a direct debit or standing order

  • CPA - Continuous Payment Authority and is when a customer authorises a business to withdraw money from a customer's card repeatedly without having to ask authorisation for each payment.
  • Direct Debit - Direct Debit is when a customer instructs their bank to let a business to withdraw money directly from their bank account repeatedly without having to ask authorisation for each payment.
  • The main difference - Direct debits and CPA are very similar. The main difference is that with CPA, the customer has a contract with the business. With Direct Debit, the customer has a contract with the bank or credit card company. Another difference between CPA and other modes of payment is that there are no extra charges for failed CPAs. But a failed direct debit can cost you extra.

How to cancel a CPA?

You have the legal right to cancel any CPA arrangement whenever you want to. Even if the payday loan company refuses to cancel it, your bank has to cancel these payments if you instruct them to.

To cancel a CPA with a payday loan company, you should first contact them and request that they cancel the payment arrangement. To ensure that money doesn't continue to be taken from your account, you should also contact your bank and have them cancel the payment.

Your bank will issue a notice to the business to stop them taking the payments. They also keep a record of your instructions and monitor your account. If the payments continue to be taken from your account for any reason the bank should refund the money and contact the business's bank sending you a letter confirming the action the bank have taken.

Please note that stopping payments to a payday loan company doesn't mean that you no longer owe the money. But you can arrange with them a payment method that gives you more control and security over when and how money is taken from your account, such as a standing order, Direct Debit or manual payments.

Remember, you can cancel Continuous Payment Authority (CPA) arrangements at any time. To stop a specific payment, you have to request cancellation at least one working day before it's due. If you don't, the payment will be honoured and your cancellation will apply to the next regular payment.

Conclusion

Consumers were often warned away from CPAs in the past, due to the ruthless debt-claiming tactics from unscrupulous payday lenders. However, the new regulations introduced by the FCA have really helped to put a stop to this. There are actually some advantages to having your payday loan repaid by CPA - such as the speed of set-up - that make it a favourable option.