United kingdom Daily news: Rise of the recurring payment menace: How to avoid the continuous payment trap

Rise of the recurring payment menace: How to avoid the continuous payment trap

By Tara Evans and Ed Monk

PUBLISHED: 09:11 EST, 2 May 2012 | UPDATED: 09:19 EST, 2 May 2012

Increasing numbers of bank account-holders are complaining about mystery payments on their statements for services they thought they were no longer paying for. We explain how to avoid the 'continuous payment' trap.

The Financial Ombudsman Service, which handles disputes between companies and individuals, has reported steady streams of complaints about 'continuous payment authorities' (CPA).

The problems is being made worse by banks that incorrectly tell customers they cannot cancel the payments.

These are the agreements that individuals enter into - often unwittingly - when they sign up to a service. They are are common in gym contracts, credit check services and subscriptions to services such as Lovefilm or Netflicks.

They also feature in pay-day loan agreements and give lenders the right to access borrowers bank accounts if they fail to make repayments.

Balance: Consumer Focus has found that bank and building society staff are confused about CPA's and give inaccurate advice to customers.

It is an automatic payment which is set up using a debit or credit card and works in a similar way to a direct debit. The customer gives a supplier or retailer permission to take payments from their card.

Unlike a direct debit, however, a continuous-payment authority is not covered by any bank guarantee.

And because consumers often set up CPAs over the phone or through the internet, there is often no paper record of what has been agreed. If a dispute later arises, this can make it difficult to prove what sales staff told customers.

More and more people are reporting that payments are taken unexpectedly, typically when they had assumed a service was a one-off or had been cancelled.

Sometimes services - such as credit checks - will be advertised as 'free' for a period, but a CPA means that payment will be taken unless customers cancel. Â

Sarah Brooks, director of financial services at Consumer Focus said: 'CPAâ€™s are a frequently used but little understood form of payment. Problems with cancellations are leaving consumers going overdrawn or paying for something they no longer want, which is unacceptable.'

Consumer Focus said that consumers' lack of awareness was being made worse by incorrect information given by bank staff.

In a 'mystery shop' of nine major firms - Santander, Barclays, HSBC, Lloyds TSB, Halifax, Bank of Scotland, RBS, NatWest and Nationwide â€" Consumer Focus contacted major banks and building societies' customer services advisers more than 300 times to test staff awareness of how consumers should go about cancelling a CPA.

It found that on nearly half of occasions advisers gave the wrong answer or did not know how to cancel a CPA.

How can you avoid the CPA trap?

1 - If they ask for card details, ask them why

Companies give all sorts reasons why they need your debit or credit card details. If you think you are signing up to a free trial, or a one-off service, and you are asked to hand over card details be on alert that you may be signing up to a CPA and repeat payments.

2 - Keep an eye on your bank account

You can be forgiven for agreeing to an unwanted CPA in the first place, but if you stand by while multiple payments are taken with you noticing then it becomes an issue of your negligence. The worst losses from CPAs come when individuals fail to check their monthly outgoings and spot the problem only after several payments have been taken.

Checking your bank account regularly is good practice anyway and this is one of the reasons why. Note that payments may not show any reference to the company that provided the service - it could be an abbreviation or some other name - so look out for any mystery payments.

3 - Where you find an unwanted CPA cancel with the company AND the bank

Contrary to what bank staff may tell you (see above) you can cancel a CPA with your account provider. You should also cancel with the company with which you hold the agreement. Keep a record of all emails or letters in case you need them later.

4 - Getting refunds

This can be difficult. You are legally entitled to get money back if its taken after an instruction by you to cancel the CPA, but not for money taken before cancellation.

But reputable companies should listen to your complaint, so if you felt misled by staff or advertising, explain this to them.

If this doesn't work, companies may be signed up to codes of conduct for their industry, or could be subject to a dispute ombudsman.

Internet and mobile service providers sometimes use CPAs and disputes between individuals and these companies are covered by the Communications and Internet Services Adjudication Scheme (CISAS)

The Fitness Industry Association is a trade body for gyms and has a code of conduct - although it stops short of dispute resolution.

Complaints about financial companies can be made to the Financial Ombudsman Service. But note that you are unlikely to be able to complain about your bank in the event of payments taken by another company.