The problem with recurring payments and a continuous payment authority
Find out how to avoid falling victim to this highly dubious practice.
The more anecdotes I hear from readers about recurring payments, the more I realise how truly appalling they are.
A recurring payment (also known as a 'continuous payment authority') is an automatic regular payment which is set up using your debit or credit card. You might use one to pay for costs such as car insurance or a magazine subscription. You might think it's the same as setting up a direct debit. But it's not, and the process can easily go wrong, as I explain in this video.
Why are recurring payments so bad?
The major problem with a recurring payment is it can only be cancelled by the company you set it up with. In other words, you have no control whatsoever, while the company you make the payment to sits in the driving seat and has regular, legal access to your credit or debit card.
If you want to stop the payment you'll have to rely on the company's willingness to accept your instructions. This is completely different from direct debits or standing orders which give you the right to cancel payments instantly. With a direct debit you authorise your bank to pay money to a third party, but you can easily remove permission by asking your bank to cancel the instruction, and the company can do nothing about it.
How often do recurring payments go wrong?
You may be surprised to hear how regularly apparently legitimate firms make their customers jump through hoops to bring a contract for goods or services to an end when they pay using the recurring payments system. Less reputable companies have even been known to sign unwitting customers up to lifetime subscriptions, which are almost impossible to stop later on.
Worse still, cancelling your card won't necessarily put an end to the payments. Your card may be closed but, unbelievably, a company could still keep on charging you, as we explained in Avoid this devious credit card sting.
The devil is in the detail
That said, most companies should allow you to cancel a recurring payment as long as you stick to the terms and conditions. That's why it's really important to read the small print before you sign up. For example, there may only be a specific window when you can stop to a recurring payment. If you miss it, you may find you've committed yourself to paying again whether you wanted to or not.
This is exactly what happened to lovemoney.com reader, Paul Owen who had his car insurance policy with ibuyeco. Mr Owen told us:
"They [ibuyeco] took £350 from my account causing [several] direct debits to fail the next day costing me about £112. When I queried this, they said that I had ticked a box online when we first took out the policy 12 months ago and that they had sent us a renewal notice which we did not receive (postal strike?) allowing them to renew automatically.
So I asked them to remove my card details from their system so that this could not happen again. They refused, claiming that unless I replaced the card with another one, my current insurance policy would not be active even though I had paid for it.
I told them to cancel the policy for which they charged me £20 claiming I was now outside the cooling off period."
It's often not clear that customers have agreed to a recurring payment. Mr Owen said he would never have knowingly given his permission for an automatic payment at the renewal date because he shops around for a new car insurance policy every year.
We took this point up with ibuyeco. They said their right to automatically renew the policy was clearly stated in the terms and conditions of the policy. A telephone number was also provided which policyholders are able to call if they wish to opt out of the automatic renewal process.
But the point is: Mr Owen didn't know he had to opt out - since he was unaware he had opted in!
In total, Mr Owen was £482 out of pocket with ibuyeco taking the £350 premium, plus the bank charges incurred and the policy cancellation fee.
As if that wasn't bad enough, it's also a huge concern that ibuyeco could void his insurance if his card details were removed from their systems - even though he had already paid for it. The insurer told us that a payment method needs to be attached to the policy for it to remain active. They said otherwise, they would be unable to process any further payments following amendments to the policy, deal with any queries regarding the initial payment or arrange any necessary refunds to the policyholder.
Again, this isn't technically illegal, if it's stated in the terms and conditions, but it hardly treats customers fairly if such information is easily missed. I fail to see how any of this justifies cancelling a policy when payment has already been taken from a customer.
It's not just insurance companies that operate this system. Here at lovemoney.com, our head of IT was caught out by a web hosting company called Fasthosts. It took £55 from his debit card as a recurring payment, and even though he spotted it and tried to cancel on the day of renewal, the company refused.
It said that it was "clearly communicated" in its terms and conditons that its service would be supplied until a customer wished to cancel, and cancellations must be received prior to the date of renewal. But Fasthosts doesn't remind its customers that the another payment is about to be taken. So you have no warning beforehand, and no way of cancelling once you do know.
The AA also uses recurring payments when you buy one of its car breakdown policies, although it does send out reminders to customers that a payment is about to be taken.
How can I stop a recurring payment?
What can we learn from this? If payments have been taken against your wishes, there are steps you can take even if you inadvertently gave your consent. Here's a quick step-by-step guide to stopping a recurring payment:
1. First of all, contact the company and ask for the recurring payment to be cancelled immediately. This should do the trick with most reputable firms.
2. If the company refuses to do so, check the terms and conditions carefully. There should be at least one point in the year that you can cancel before another payment is taken. Make a note in your diary to act on that date.
How can I get my money back?
1. Complain to the firm and dispute the payments officially in writing.
2. If you're still having no success, dispute the payments with your debit or credit card provider next. Tell them that further payments to the company are unauthorised. If you have already cancelled your card this suggests you weren't aware future payments would be taken which may strengthen your case.
3. Report the company to Consumer Direct. If the terms and conditions are deemed to be unfairly weighted against the consumer, Consumer Direct will then pass on details of the firm to Trading Standards. This will help to ensure others don't get caught in the same trap.
4. Your last resort is to complain the relevant Ombudsman Service. It's the job of the Ombudsman to settle complaints between customers and companies. Sometimes just the threat of reporting a company to the Ombudsman is sufficient to resolve matters.
In Mr Owen's case, ibuyeco agreed to refund the £350 premium with a deduction of 3 day's worth of cover. The company has also refunded the £20 cancellation fee. The Financial Ombudsman Service has sent a letter to ibuyeco, outlining the grievance in reference to the bank charges incurred by Mr Owen when ibuyeco took payment from his account without warning. The company has six weeks to respond. Mr Owen has since taken out a cheaper car insurance policy with Saga.
Unfortuantely, our head of IT has not been so lucky - Fasthosts has refused to give him a refund. Clearly, this is not a web hosting company I would recommend!
I'll finish by saying: AVOID RECURRING PAYMENTS. If a company you buy goods or services from is part of the direct debit scheme, insist on paying that way so you have complete control with the guarantee the scheme provides.
If you can't pay by direct debit, ask if you can pay by standing order or make payments manually when they become due. Failing that, you could try using a pre-paid card where you can't spend more on the card than the amount it is pre-loaded with. This should scupper any company who tries to take money more from you than it should.
If you've had trouble with a recurring payment, why not share your experience and ask for help from others lovemoney.com readers using Q and A? Or, if you've had experience with any of the firms listed above or new ones we've missed that you know operate recurring payments, please tell us using the comments box below.
Please note the reader's words have been edited slightly to keep it brief, but their meaning remains the same.