How does Continuous Payment Authority work?

Continuous Payment Authority is a collection method used by several banks and lenders in the UK as a way of automatically collecting funds from a customer’s debit account on their repayment date.

CPA or ‘recurring payments’, as it is also known, is used by most of the guarantor lenders that we feature. When a customer applies, their debit card will be ‘tokenised’ and this typically involves the lending taking 10p out of the account and putting 10p back in. This allows the lender to verify that the card works, belongs to the individual and implies that future collections should work too. The card details are also logged so that the lender can collect from the customer automatically when their repayments are due.

When it comes to collecting a repayment, the CPA ‘pings’ the customer’s account for the money. There is usually a fee to the lender for using this system. The lender has flexibility and can pretty much collect from your account whenever it wants and how much – but they will not abuse this privilege as they must maintain the FCA regulatory guidelines and the terms in their loan agreement.

How is Continuous Payment Authority Different to a Direct Debit?

CPA It is similar to a direct debit in the sense that there is some initial set up and it is a way of creating automated collections from an individual’s debit account month after month.

The way it is different to a direct debit is that with a DD, the customer sets it up and has control to remove it at any point. With Continuous Payment Authority, the lender has to set it up on their side and the customer cannot just cancel it on their own accord.

Why Do Lenders Use It?

Guarantor lenders, payday lenders and banks use CPA because it is a practical, convenient and scalable way to take collections each month.

To save the customer having to call up and make a repayment over the phone, send in a cheque or manually send money through their online banking each month when a repayment is due, CPA is set up once and then all future collections are handled automatically.

For lenders, it is immensely scalable. The lenders we feature and those similar to Amigo, will tend to have hundreds, maybe thousands of collections to make each month – especially on the last Friday of the month when most people get paid. So rather than handling each transaction manually, the Continuous Payment Authority can ‘ping’ everyone debtors account first thing in the morning.

If a payment fails, a trigger can be set up by the lender so that an email and text message automatically goes out to each customer that failed repayment. It can tell them that payment is due and that they need to put funds into their account. Or its possible that payment failed because the customer’s debit card has expired and simply needs to be updated.

Can I Cancel My Continuous Payment Authority?

Yes, you can cancel your Continuous Payment Authority at any time. However, you will not be able to do this manually, you will have to ask your bank or the lender to cancel it for you.

The reason you may wish to cancel is because you don’t want the lender taking money from your account that month. Perhaps you have another urgent expense so would prefer to use the money towards that and defer payment on your current loan – it is very common.

The National Debtline explains:

“As part of the Payment Services Regulations 2009, you can withdraw your permission for a payment, or series of payments that is  made using your debit or credit card.”

The FCA handbook states that it can be cancelled in the following ways:

If your Continuous Payment Authority is not cancelled when you have requested as such, any transaction is considered unauthorised and card issuers must refund these payments and any related charges immediately. You can contact your card issuer for a refund and if not, you can make a complaint to the Financial Ombudsman Service.

How often can lenders use Continuous Payment Authority?

There used to be no limit on the amount that loan companies could use CPA to collect money owed to them. So if a payment was not available in the morning, some lenders would ping accounts over and over for the rest of the day hoping that money would go into a customer’s account and they could retrieve it. There would be a cost to the lender for every time they pinged the account.

Following an increase in regulation, there is now a limit to how many times CPA can be used per day by lenders. This is because some borrowers did not want money taken out of their account as soon as it entered and they didn’t like the surprise of money being taken out of their account at any given opportunity.

What are the other collection methods?

Whilst CPA is the preferred method of collection by lenders, giving them control and an effective way to collect money, other collection methods used by lenders include:

• cheque
• cash
• manual payment

In some cases, lenders in the UK are willing to accept payments by cash and cheque. However, this is usually when payments are in arrears and the customer is slowly repaying what they owe (or someone is paying on their behalf). Several lenders also allow customers to log into a ‘my account’ section of the website so they can always make manual repayments early if they want to.

Credit cards are not typically used by guarantor lenders and payday lenders as a means of collection. This is because it is like using debt to pay off other debt – so it could cause the customer to fall into a worse financial situation by choosing to repay via a credit card.