Whether it's a streaming service subscription or an electricity bill, many of us are used to making recurring payments with debit cards. But do you know the ins and outs of how these transactions work? From automatic billing to different payment terms, there’s much more than you think when it comes to setting up recurring card payments.
That said, let's get into the details and take a look at the different types of recurring card payments, as well as some terms you should be familiar with.
Introducing Recurring Card Payments
Recurring card payments are charged to the same payment method on a fixed schedule. This type of payment plan is ideal for companies offering subscription-based services or products, as they can easily collect recurring payments from customers.
There are three types of recurring card payments: continuous payment authority (CPA), direct debits, and standing orders.
CPA is an agreement between a customer and a merchant to charge their card on a regular basis.
Direct debit allows customers to authorise merchants to take fixed recurring payments from their bank accounts at predetermined intervals.
A standing order is when customers set up a fixed amount for the merchant to withdraw from the customer’s account on the same date each month.
CPA | Direct Debit | Standing Order | |
|---|---|---|---|
Setting up | You can set up a CPA by providing your card details to the merchant – usually via a website or application. | You can set up by signing an agreement with the merchant, which authorises a direct transfer to the merchant at the agreed time intervals. | You can set it up by filling out a form including the account details of the business you’re paying to as well as the terms of the payment. |
Cancellation | To cancel a Continuous Payment Authority (CPA), you will need to contact your bank or merchant directly. It may be possible to cancel over the phone or online, depending on what service is being provided. | The process of cancelling a direct debit depends on the merchant, bank, or payment service provider that is taking the payment. Generally, you will need to contact your bank or the merchant directly and let them know that you wish to cancel the direct debit. | Standing orders are generally easier to cancel than direct debits, as you typically can do it yourself through your online banking platform. Otherwise, you can contact your bank directly and provide instructions to cancel it. |
Potential risks | The primary risks associated with CPA are related to fraud, customer dissatisfaction, and the potential for service disruptions. Fraudulent merchants can use this type of payment without making customers aware of additional charges or fees. | If a direct debit is set up incorrectly then the wrong amount may be taken from your bank account which could lead to an overdraft or missed payments. | Incorrect details may result in payments going missing or ending up with an unknown party. |
Effect on credit rating | Credit card CPAs can negatively affect your credit score if you go over your credit limits. | A direct debit can have a positive effect on your credit score since it lets you pay utility bills and loans on time. | Failure to fulfill a standing order due to insufficient funds could affect your credit score. |
Risks and Benefits Associated With Recurring Card Payments
- Convenient, secure, and automatic payments
- Recurring billing reduces manual work for businesses
- Customers can easily manage their subscriptions in a single platform
- A lack of transparency with charges or terms and conditions
- Some banks may charge extra fees to set up recurring payments
- Risk of unexpected costs due to incorrect setup or service changes without notification
- Potential misuse by fraudulent merchants leading to unauthorised payment deductions
- Difficulty with reversing the process when cancelling services
Recurring Card Payments: Types & How to Cancel
Recurring billings are often divided into two categories; fixed and variable.
As the name suggests, a fixed recurring payment is one that remains the same each time it processes. For example, if you set up a subscription for your monthly gym membership at £50 per month, then each month you will be charged £50 plus any applicable taxes or fees.
Variable payments, on the other hand, tend to change depending on the user’s choices. An example could be an online streaming service like Netflix, where customers pay different amounts depending on which package they choose.
In some cases, variable recurring payments are charged based on 'usage' or 'quantity'. For example, utility companies typically charge customers based on how much electricity they use each month.
1. Continuous Payment Authority (CPA)
Continuous Payment Authority (CPA) is a type of recurring payment plan that involves customers authorising merchants to take payments from their credit or debit cards on a regular basis. CPA is often used for subscriptions and other services charging recurring payments.
When setting up a CPA, customers are asked to provide their card details and billing information, which will then be stored by the merchant. This allows them to charge the card at predetermined intervals without needing to ask for the customer’s permission each time. Additionally, CPA can also be set up with limits, such as how much can be charged in one go or over a certain period of time.
It’s important to note that CPAs are different from direct debits as they are not linked directly to a customer’s bank account. So, unlike standing orders, CPAs do not require any additional authentication each time a payment is taken.
What happens if you switch banks?
If you switch banks while having an active CPA agreement in place, you may need to re-enter your card details with the merchant. This is because when you switch banks, your existing card number will be cancelled and a new one issued. Your bank may not inform the merchant of the change, so it’s important to contact them and provide your new card details.
How can you cancel a CPA?
If you no longer wish to use CPA for automatic payments, you can simply cancel this by contacting the merchant directly. Customers need to be aware that some merchants may require written confirmation of cancellation, which means you will have to send a letter or email. However, most CPAs can be cancelled online these days. If a merchant doesn't cancel the CPA on time, you can cancel the payment by contacting your bank directly.
Note: According to the Financial Ombudsman Service, merchants should cancel recurring payments once customers make such requests. This provides a legal protection for customers, who can take further action if the merchant does not comply.
2. Direct Debits
Direct debits are a type of bank-to-bank payment, allowing merchants to take money from a customer’s current or savings account on pre-determined dates. Unlike CPA agreements, direct debits require customers to give explicit permission for the merchant to access their bank accounts and charge them for goods or services.
When you set up a direct debit, you grant the merchant permission to withdraw funds from your account on specific dates. Customers can also choose to set up their own direct debit payments by giving instructions to their bank. This could be used to pay bills or loan repayments as they become due.
One of the biggest advantages of using direct debits is that customers can be sure that payments will be made on time without having to remember when they need to make them. Additionally, it eliminates any risk of late payments, additional charges and penalty fees associated with missed payments. It also reduces paperwork since customers don't need to issue cheques or go through other cumbersome manual processes.
What happens to your direct debit if you switch bank accounts?
If you switch banks, make sure to inform your merchant about the new bank account details. The merchant will then need to update their records so that payments can be taken from the new bank account you set up. Sometimes, your old bank may inform all businesses that you have a direct debit setup with the new details for your account. It is important to contact any other companies that you pay via direct debit to make sure they also have the updated information, so payments can be processed correctly.
How can you cancel a direct debit?
The best way to cancel a direct debit is to contact your bank directly. Most banks provide online services where customers can access their banking accounts and manage existing payments, as well as set up new ones. Some online-only banks will even remind you of direct debits you might have forgotten about. Alternatively, you can also call them or visit a branch in person to inform them of the cancellation.
3. Standing Orders
Standing orders are a type of recurring payment that allows customers to set up regular automatic payments from their bank account to another bank account. Unlike direct debits, the merchant does not have access to a customer's bank account and cannot withdraw funds automatically.
Customers can use standing orders to make payments for various bills such as rent, loan repayments, insurance, and more. They are also used by small businesses when they need to pay suppliers or employees on the same date each month. The amount of money transferred is agreed upon in advance and customers can choose whether they want the payments to be made weekly, monthly, or annually.
For customers wanting to use the Standing Order payment option, they must complete a form and submit it to their bank. The bank will then apply the order to the customer's account, and process payments accordingly. This is in contrast to direct debits which often require you to give the merchant explicit permission to access your bank account once you fill out an online form.
What happens to your standing orders if you switch banks?
If you decide to switch banks, most of your existing standing orders will remain unaffected as long as the bank moves your accounts to the new bank. Most UK banks offer to do this automatically, but it is important to check with the new bank that all standing orders have been transferred successfully.
How can you cancel a standing order?
To cancel a standing order, you will need to contact your bank directly. The process of cancelling is usually done online or by calling or visiting the bank in person.
Reclaiming Recurring Payments
We get it, sometimes life events can make it hard to keep track of all our payments. If you've lost control or experienced an unfair charge or an unwanted recurring payment, there are steps you can take to reclaim your lost funds.
1. Talk to the merchant or reach out to your bank
The most important step is to contact the merchant directly. Explain what happened and clearly state when they will stop taking payments from you. Be sure to keep a record of the conversation for future reference in case of any misunderstandings.
In some cases, it would be best to contact your bank directly. Many banks have a dedicated team to handle queries or disputes related to recurring payments and they are often able to investigate the matter quickly.
Note: If the payment in question was a standing order, you may want to reach out to your bank first as they can usually cancel or reverse the order right away.
2. Evaluate the response
Even in the worst-case scenario where your attempts to cancel the payment fail, you should evaluate the response and situation to determine if a refund is possible.
In some cases, businesses may be willing to provide partial refunds or discounts on future payments due to extenuating circumstances. It is also worth noting that depending on how long the payment has been running, there may be ways of reclaiming money from old payments as well. If you were charged for a service after you asked your merchant to cancel, the Financial Ombudsman Service provides legal grounds for you to get a refund.
3. Contact the Financial Ombudsman Service
If you're not satisfied with the outcome of your negotiations, you can file a complaint with the Financial Ombudsman Service. This is an independent body that helps settle disputes between customers and financial services providers.
The Financial Ombudsman Service will assess your case based on the evidence provided and decide whether a refund is justified. Before a decision is reached, the merchant will be given an opportunity to respond.
If the decision is made in your favour, the merchant will be obligated to provide you with a refund or compensation. Keep in mind that it can take several weeks or even months for the Ombudsman Service to reach a decision, so make sure to plan ahead if you need to reclaim money urgently.
Note: You must contact the Financial Ombudsman Service within 6 months of getting the feedback from the merchant or else, your case won't be considered. To ensure you're eligible to file a complaint, fill out the online complaint checker.
4. Take legal action
If you are still not happy with the outcome and need to take further action, then it may be worthwhile using a specialist debt recovery service. This is usually a last resort as it can be expensive and may end up costing you more in legal fees than the amount of money reclaimed.
Though it can be daunting to challenge a large corporation, remember that you have the law on your side. Make sure to gather evidence and consult with an experienced lawyer before proceeding down this route.
Final Thoughts
Recurring payments are a convenient and secure way for businesses to their billing process. To ensure your safety when using this type of payment, always read through the terms and conditions first before signing up and make sure you contact your bank immediately in case of any suspicious activity on your account. With these precautions in place, you should have no trouble benefitting from all the advantages that come with making recurring payments online!
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