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3rd December 2012

Continuous payment authorities have caused a lot of confusion in recent months. They are often used to take payments from debit cards at a set future date. Also known as recurring transactions, these types of payments are often attached to payday loans.

During 2012 there have been many reports that banks have refused to allow their customers to stop a continuous payment authority. This flies in the face of FSA guidance that consumers are entitled to do so.

When taking advice about debt management plans (or other debt resolution options) people are often told to suspend payments to their creditors. This is pretty straightforward with standing orders and direct debits, but hasn’t necessarily been easy with continuous payment authorities.
There are many reasons why suspending direct payments to creditors can be desirable. Top of the list is the need to retain cash to pay the most important bills (which are known as priority debts). For example, paying your mortgage or rent is much more important than paying an unsecured loan or credit card. It’s also more important to have cash for food than it is to repay unsecured debts. If you cannot cover these bills and costs without cancelling debt repayments this move will be essential to attain a measure of control over your finances.

Payday loans, which commonly use continuous payment authorities, may require large sums of money to be taken from your account on a set date. As payday loans are often used when people already have really serious debt problems, there are often one or more such payments due in the future at the point that people take advice about starting a debt management plan.

If you are told to stop any continuous payment authorities that exist for payday loans (by a debt management adviser) the following steps should help:

  1. Act promptly. You can instruct your bank and the payday lender to stop the continuous payment authority up until the end of business hours the day before the payment is due.
  2. Maximise your chances by contacting both your bank and the payday lender to stop the payment.
  3. Tell the payday lender that you have debt difficulties and that you are seeking advice. OFT guidance is that the lender should demonstrate some forbearance in these circumstances.
  4. Advise the lender that the continuous payment authority should not be used again in the future as you require the funds to cover your essential bills and costs (assuming that this is true).

After taking these steps you should be in a position to recover any money taken from your bank account under a continuous payment authority if your reasonable instruction has been ignored.

Remember that cancelling any kind of debt repayment, including a continuous payment authority, isn’t a step to take lightly. Make sure you have received full professional advice about debt management plans and other debt solutions first so that you have an effective overall plan of action in place to bring your finances back under control.

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