Principles for use of Continuous Payment Authority
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A Continuous Payment Authority (CPA) authorises a business to withdraw sums from a customer's account without having to seek repeat authorisation for each payment. [see note 1] CPAs are often used to collect payments for the purchase of goods and services such as vehicle breakdown services, insurance policies, broadband and mobile phone services and magazine subscriptions.
The following principles are designed to assist businesses by indicating the core standards of behaviour which, in the OFT's view, should underpin CPA use to ensure fairness to consumers and/or compliance with the law. [see note 2]
This is not intended to be a comprehensive statement of the law in this area. Businesses are advised to familiarise themselves with the Financial Services Authority guidance on the Payment Services Regulations 2009 (PSRs) and - in the case of creditors collecting consumer credit debts - the OFT's revised guidance on debt collection. [see note 3]
General guidance on the Consumer Protection from Unfair Trading Regulations 2008 (CPRs) and the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs), which are relevant in this area, and other consumer protection legislation, can be found in Business Advice.
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- If a CPA is to be used, the business should prominently disclose this to potential customers as soon as possible. In particular, the scope of the agreed authority should be clear. The consumer should specifically agree to the amounts to be debited (or the basis on which these will be calculated), the timing/frequency of payment attempts, and the account to be debited. These should be documented appropriately and explained to the consumer.
- In the case of third party accounts, the business should be satisfied that the third party has authorised use of their account.
- Consumer consent to a CPA should not be assumed - such as through the use of opt-out provisions. The consumer must positively indicate their informed consent to the use of a CPA. For example, where a consumer is offered a free trial, after which payments will be taken, the consumer should be asked to agree to the actual liability before any payments are taken. Failure to do so may result in the contract being considered unenforceable, with the consumer being entitled to a refund of all payments made.
- All relevant terms of the CPA agreement should be set out clearly and in plain, intelligible language, and brought prominently to the consumer's attention. They should not just be contained in 'terms and conditions'.
- It is good practice to highlight the name that will appear on the customer's statement following payment.
- Where the consumer has a cancellation right or there is a free trial period, the consumer should be given clear and prominent information on how to cancel and the associated procedures. The means of cancellation must be reasonable.
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During the life of the contract
- Any changes to the scope of the agreed authority, such as the amount or timing of payments, or the relevant account, should be made only if the contract allows for this, or the consumer expressly consents, and should be notified to the consumer before they take effect.
- It is good practice to provide customers with either a brief statement each time a payment is taken or a summary annual statement at year end.
- The customer should be given reasonable prior notice of renewal of the contract. If a contract is being renewed for an additional fixed period this should be treated as a new contract for the purposes of disclosure and information regarding cancellation rights.
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Cancellation of the contract
- Businesses should ensure that customers are aware of any statutory or contractual right to cancel the CPA, or the underlying contract, or to cancel automatic renewal terms, and that they are clear about the process involved and alternative payment options.
- The procedures for cancellation or amendment of a CPA should be reasonable and should not be subject to any unnecessary or unduly complex process.
- Requests for cancellation should be responded to promptly, and no obstacles should be put in the way of a customer cancelling.
- It is good practice to enable the customer to cancel using the same medium as was used for CPA sign-up (for example, if sign-up was online, there should be an option to cancel online).
- If a consumer cancels the CPA, the business should stop attempting to take money from the consumer's account. No fee or penalty should be charged for the act of terminating a CPA itself (and any underlying contractual liability will be subject to the UTCCRs).
- Businesses should be aware that in certain circumstances a minimum term period in a contract may be unenforceable under the UTCCRs, [see note 4] and in such cases attempts to enforce such a term may be a criminal offence under the CPRs.
- Customers should not be misled regarding their rights to cancel. In particular, they should not be told they are required to contact the business before (or instead of) the payment service provider. [see note 5]
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The OFT's enforcement role is changing
From 2 April 2013, under changes to the consumer protection regime introduced by Government, there will be a greater role for the local authority Trading Standards Services in the enforcement of consumer protection law at national level. The OFT will retain all of its current consumer enforcement powers but will tend to use them where breaches of consumer protection law point to systemic failures in a market. This means cases will more often be taken against a number of firms in a market, rather than cases against individual firms, unless changing the behaviour of one firm would set a precedent or have other market-wide implications.
The OFT will also retain the lead role for the enforcement of the Unfair Terms in Consumer Contracts Regulations 1999 although the Trading Standards Services will have equal enforcement powers.
In the first instance consumers are encouraged to contact Citizens Advice regarding any problems they may have in buying goods or services.
note 1. Payments are taken (often on a regular basis) subject to agreed terms but not through a direct debit, standing order or similar payment mechanism. CPA is sometimes referred to as a recurring transaction on a payment card.
note 2. Where these principles set a standard higher than required by legislation, they indicate the OFT's view as to fair practices rather than legislative requirements.
3. Paragraph 3.9(m) of the OFT's Debt collection guidance sets out the OFT's position on the misuse of CPA by creditors including our expectation that creditors will exercise appropriate forbearance where there is evidence to suggest that the borrower is, or may be, experiencing financial difficulties. We would encourage all businesses using CPA to incorporate a similar approach to ensure fair treatment for customers experiencing financial difficulties.
note 4. See press release High Court rules that terms in thousands of gym contracts are unfair, following OFT action, 27 May 2011.
note 5. Under the PSRs, consumers can cancel any future transaction at any time up to close of business on the preceding day. The transaction can be cancelled either with the trader or the payment service provider (the customer's bank or card issuer). It is good practice to notify the trader, particularly where there may be an underlying contractual liability, but this is not a pre-condition for cancellation.
Treating customers fairly