Up to 30,000 consumers may be eligible for compensation after some banks failed to cancel regular payments when requested.
Typically affecting those with gym memberships, payday loans and others, these payments are known as Continuous Payment Authorities (CPAs), and account for £7.5 billion worth of payments each year. The average payment is £45, or £80 for those with payday loans.
The Financial Conduct Authority (FCA) is in charge of regulating these payments, and since 2009 banks and building societies have been obliged to cancel CPAs when asked by customers. However, the FCA says that some providers haven’t been doing this, forcing consumers to cancel with the business directly.
CPAs - not to be confused with Direct Debits - are notoriously difficult to cancel. The account holder is often told that they must cancel with their bank, who then insists that they should contact the business directly - even though the rules say otherwise. This means that a person can quickly lose control of their finances, and incur charges with businesses like payday lenders.
Clive Adamson, director of supervision at the FCA, said:
“We recognise that historically this is an area where some customers have struggled but the banks and mutuals have responded positively to our work on this issue.” He reassured customers that “from now on [the FCA] expect them to be getting this right. In addition, they have committed to review past complaints.”
In December 2012, the Office of Fair Trading (OFT) warned businesses not to lock customers into CPAs, because they didn’t know what they were signing up to. In the same month, the Financial Ombudsman Service (FOS) said that it was seeing increased complaints about CPAs due to a “basic misunderstanding of how they work.”
At a summit held today to discuss the payday loans industry, consumer minister Jo Swinson said:
“I am concerned about some companies using CPA to access borrowers' bank accounts inappropriately and excessively. I am determined that payday lenders should not be able to misuse this system to recoup funds from vital benefit payments that should be used for essential spending, such as utility bills and rent.”