The Financial Conduct Authority (FCA) has warned finance firms that they must stop taking money out of consumers accounts as soon as the account holder cancels a continuous payment authority.
Until now the banks have claimed that only the service provider can cancel the authority which has led to thousands of people having money spirited out of their accounts when they thought they had stopped the agreement.
Victim
The watchdog’s research has shown that more than 30,000 people may have fallen victim to the way in which the banks and credit card providers have interpreted the terms of such agreements.
Continuous payment authorities work in a similar way to direct debits and standing orders which allow regular automatic payments to be deducted from your account. But the difference is that while a direct debit agreement has a fixed timescale a continuous payment authority does not and will keep running indefinitely until it is cancelled.
Favoured
It is a form of payment favoured by lonely hearts websites, fitness clubs magazine subscriptions and payday loan companies.
But now the FCA has warned the finance providers that they can no longer claim they lack the power to cancel and must act as soon as the consumer advises them they want the agreement terminated. Details of the changes can be found on the FCA website.
Compensation
The regulator has also ruled that anyone who finds they have lost out financially because their bank failed to action their request is entitled to compensation.
In a further tightening of regulation the Office of Fair Trading (OFT) has demanded that contracts such as gym memberships should be rewritten to ensure customers are no longer locked into lengthy contracts or rolling deals that exploit the way in which continuous payment authorities can dip into bank accounts.
Responsibility
The responsibility for ending an authority remains with the consumer. To cancel you should contact the bank or card issuer and tell the service provider of your intention. You will remain responsible for any outstanding money owed.
Payments taken after you have asked for the agreement to be cancelled are considered unauthorised transactions and must be immediately refunded along with any associated costs.
Important
FCA director Clive Anderson says: “It’s important that consumers feel banks are meeting their needs. If a customer asks for a continuous payment authority to be cancelled then it must be done promptly and with ease.”
Gillian Guy, chief executive of Citizens’ Advice, says: “People feel powerless when banks fail to stop continuous payment authorities and we are pleased that the watchdog is now forcing banks to act.”
Russell Guthrie of the OFT says: “Service providers such as dating agencies, gyms and payday loan firms can prey on any embarrassment you have demanding money back. But terms and conditions should be made clear when you sign the contract.”
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