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ombudsman news

issue 103

June/July 2012


consumers regularly come to our community law centre with problems cancelling so-called "continuous payment authorities" - where neither the company they gave the authority to (for example, an internet company) nor their card provider or bank will accept responsibility. Can the ombudsman help here?

A "continuous payment authority" is a payment arrangement that a consumer sets up on their plastic card. This type of payment arrangement is often used to enable regular monthly payments - for example, to pay for a gym membership or internet subscription. But it can also be used to enable a supplier to take variable payments as and when required.

The consumer gives their authority to the supplier that they want to pay - and the supplier then takes the regular payments direct from the consumer's bank. Each payment will show up as a transaction on the consumer's bank statement in the normal way.

In cases we see, the consumer has run into problems when they decided to stop the ongoing payments - perhaps because they no longer wanted the underlying service they were paying for, or because they were unhappy about the way the continuous payment authority was being used by the supplier. Usually they have been unable to make the supplier stop taking the payments - and they can't get their bank to stop things at their end, either.

Until November 2009 the consumer could only cancel continuous payment authorities with the supplier. They could not simply cancel it with their bank in the way they could with a standing order or a direct debit. This meant that if the supplier decided not to cooperate, the consumer could find it very difficult to stop the payments.

From the cases we've seen, since November 2009 there appears to have been some confusion about whether - and how - a continuous payment authority can be cancelled. This seems to be because not everyone has thought about how the payment services rules (which came into effect in November 2009) strengthened consumers' rights to stop payments like these.

From November 2009 consumers have been able to cancel continuous payment authorities direct with their bank - and the bank has then been bound not to make any further payments, even if the supplier continued to request them. If the bank makes payments under a continuous payment authority after the consumer has cancelled it, the rules say that the bank will generally be liable to return those payments.

The law is one of the things we take into account when we consider cases. So we have always applied the payment services rules to complaints about unauthorised payments made since November 2009. Where we decide that a bank has made a payment under a cancelled continuous payment authority, this means the usual outcome is that we tell it to refund the payment.

Of course, it makes sense for a consumer to cancel a continuous payment authority with both the bank and the supplier - to minimise any chance of problems later on. The purchase agreement that the consumer signed with the supplier may also require some form of notice or cancellation before they can stop it. So just cancelling the payments with the bank may not be enough to stop the consumer being liable to pay (for example, there may be a minimum contract period). This means it's always wise to check first.

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