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The Continious Payment Agreement Trap – NO Direct Debt Guarantee (UK)!

4 March, 2011 (05:40) | Consumer Watch, Scams | By: admin

Introduction:

When one sets up a direct debit on the UK it is backed by and protected in full by the direct debit guarantee that applies to all UK banks and building societies.

The direct debit guarantee states the following:

* if there is a change in the amount to be paid or the payment date, the person receiving the payment (the originator) must notify the customer in advance.
* if the originator or the bank/building society makes an error, the customer is guaranteed a full and immediate refund of the amount paid.
* customers can cancel a direct debit at any time by writing to their bank or building society.

(The information above was taken from the Financial Ombudsman Service official website, please click here to visit.)

This is all well and good if your regular payment is in fact taken by direct debit, but unfortunately more and more companies in the UK are choosing to use continuous payment agreements instead (also sometimes known as a continuous payment authorities) and if there’s a problem customers are left with little power to stop companies taking payments as they see fit and there’s barely any protection to stop them. Many unfortunate customers don’t even realise that they’re entering into a continuous payment agreement and they often don’t realise the problem until it’s too late. When complaining to their bank or credit card company in an attempt to stop future payments, customers are usually surprised and sometimes dismayed to be told that only the company taking the money from their bank or credit card account is in the position to stop future payments and only they can refund any money already taken if they choose to agree to it. It makes matters much worse when a customer discovers that the company they are dealing with is less than reasonable and they could continue to take money from the customer’s bank or credit card account against their will while refusing to make any refunds. Customers can be left in a situation where they literally lose control of their own bank or credit card account where a company can keep taking payments as they please and there’s therefore non surprisingly been masses of complaints in the UK about continuous payment agreements / authorities. In the worse situation, customers can be left so desperate that they end up having to go to the extreme inconvenience of closing down their bank or credit card account to prevent more money being taken while left seriously out of pocket, this is extremely unfair to say the least and is in many ways as bad as a being conned by a scam, yet very little is being done to protect consumers.

With the on-line revolution and with credit and debit cards taking international currencies, many companies based outside the UK also sometimes use continuous payment agreements and in problem situations this can even further complicate matters since some of these companies aren’t even bound by UK law. For example, many foreign hosting companies use continuous payment agreements and while most are very reputable, one should be extra careful.

There are also many reputable and well known companies that still choose to use continuous payment agreements instead of using a direct debit agreement since with a continuous payment agreement money can be taken instantly at the time the agreement is made followed by future regular payments. When setting up a direct debt, a regular date must be agreed (usually monthly) and the bank or credit card company must be written to before any payments can be taken which takes time. Some companies however use a workaround where a direct debit is set-up for next months payment while the first payment or a deposit is paid with a credit or debit card, in my opinion this is a much better option than using a continuous payment agreement as after the initial immediate payment is taken with the full consent of the customer, the customer fully protected by the direct debit guarantee.

If you do choose to enter into a continuous payment agreement / authority, I strongly advise customers to check for reviews about the company in question to ensure that they are reputable (please also read the section titled, “Advice When Entering In A Continuous Payment Agreements Including Free Trails” lower down in this article).

How Do I Spot A Continuous Payment Agreement or a Direct Debit Agreement:

As I’ve mentioned above one is fully protected with any direct debit agreement by the direct debit guarantee, unfortunately there is little protection offered when entering into a continuous payment agreement / authority, but firstly one must be-able to spot the difference so they is no mistake when entering into a continuous payment agreement.

Continuous Payment Agreements:

A continuous payment agreement (also known as continuous payment authority) is set-up in the same way as a standard debit or credit card payment where the full card number is given. This is accompanied by the expiry date, usually along with the 3 digit security code on the back and in some situations the start date and/or issue number is also given with some debit cards. Sometimes a payment is taken immediately, on other occasions an agreed date is set and sometimes there is a free trial period where the customer must cancel within the trial period or money will be taken (see section below for more details on free trials). During the period of the continuous agreement, payments are taken at the intervals agreed which could be weekly, fortnightly, quarterly or even annually until the company cancels it (normally at the request of the customer). The payments could be fixed or variable depending on the product or service. In some cases even the date of payment can be variable, for instance some payment processors like Paypal can optionally set-up a continuous payment agreement so they can automatically take money from a chosen credit or debit card after a transaction has been processed. Be extra careful of entering into contractual agreements where there is often a minimum service period before one is allowed to cancel without any penalty, this applies even with direct debit agreements, but remember in the UK you are normally protected by a cooling off period where you can cancel within a limited amount of time, for full details please click here (a link to What Consumer).

A Direct Debit Agreements:

When setting up a direct debit agreement one is always asked for your full bank account number and sort code, usually along with the name of your bank or building society since the agreement will need to be sent off to them to authorise it. On a paper direct debit agreement you will always see the direct debit guarantee printed along with the agreement, while over the phone the operator should read the direct debit guarantee to you. Your credit or debit card number isn’t required to set-up a direct debit agreement, but occasionally a one off deposit or first payment needs to be taken immediately where you should be fully advised and only then would you need to give your card details, these immediate payments are sometimes taken since direct debits take a while to set-up. While fully protected with direct debit agreements, one must ensure that sufficient funds are in your bank on the due date since a failed direct debit normally incurs bank charges unlike with a continuous payment agreement / authority.

Free Trials and Cancelling Continuous Payment Agreements:

Free trials are often great since they give the customer or consumer a chance to try out a product or service freely for a limited period with no obligation. Unfortunately most trial trails expect you to give your credit or debit card details up front where you will need to cancel within the trial period to prevent being charged. In fact if a free trail really doesn’t need your credit or debit card details, it is usually clearly advertised with “no credit card required” or similar as this really is a great advertising point to let people know that they can truly use this particular free trial or offer without any possibility of future come backs. In other words when a free trial is not clearly advertised along with “no credit card required” it’s rare that they’re not required. People are often lead through a whole free trail sign up process and when it’s almost complete they are finally asked for their credit or debit card details. At the final stage there’s a smaller chance that people will back out of the agreement since they’ll have wasted their time getting this far and even if they do choose to back out, the company has usually obtained their full contact details so they can often continue advertising the product or service in future with the chance they’ll change their mind and sometimes other products and/or services will also be advertised or in some situations their personal details could even be sold to other advertising companies. By signing up to a free trial many people unwittingly enter into a continuous payment agreement / authority. Now there are many reputable companies that will cancel such agreements without any problems within the trail period and in this situation the customer has been able to enjoy the free trial as agreed without any cost what-so-ever, one such service from a reputable company that my both my friend and I cancelled within the trial period without any problems was The Credit Expert from Experian for instance.

Unfortunately there’s been numerous complaints about some less reputable companies which I cannot name for legal reasons and many offer free trials with continuous payment agreements. Problems can arise when attempting to cancel a free trial within the trial period. Often explicit instructions are given and must be followed exactly to cancel which might involve writing or phoning a particular phone number. Examples of complaints include customers who have tried to call the cancellation line given for it to be permanently busy or not available, then the first payment is taken from their credit or debit card against their will after they’ve tried calling repeatedly to no avail. Another common complaint is when a customer thinks they’ve cancelled the agreement after for-instance agreeing to cancel over the phone, but they later find a payment is taken anyway, in the worst situation customers have tried to cancel on numerous occasions to no avail while payments continue to be taken and sometimes the company claims they have no record of the person attempting to cancel. If a customer fails to read the terms and conditions and/or agreement carefully, sometimes the first payment could for much more than expected and this is another common complaint. The service could be advertised as for £15 a month for example, but the day after the free trial ends £45 could be taken for 3 months of service or worse £180 could be taken for a full year of service, this is in my opinion misleading.

Advice When Entering In A Continuous Payment Agreements Including Free Trails:

Prepayment Cards – Protect Yourself:

A great way to really protect yourself when taking out a continuous payment agreement is by using a prepayment credit or debit card. These cards can be used in most places as a normal credit or debit card except one has to top up the card first with a balance to be able to spend it, it is impossible to go overdrawn or to owe any money which means it’s not truly a credit card. Only the money topped up first can be used for making purchases and if an insufficient balance is available to cover a transaction, the transaction will simply be refused. If a continuous payment cannot be cancelled, simply spend any outstanding balance and don’t top up your prepayment card and no more money can be taken. Unlike a failed direct debit, there’s no bank charges for failed credit or debit card payments when the funding isn’t available and it’s not a disaster even if you need to destroy a prepayment card as they can be quickly and easily replaced and some are even free to obtain. Prepayment cards are available to anyone without any credit checks what-so-ever and some can even be picked up in various shops in the UK. The disadvantage of a prepayment card is there is always some sort of small fee along the line. Some prepayment cards are free to obtain, but the card company will charge small usage and/or top-up fees, while other prepayment cards might cost varying small amounts to purchase (E.g. £5 or £10), but they may have lower usage and/or top-up fees. Some prepayment cards have to be registered while other don’t, but one will often need to register to re-top-up and for a full service after an initial top-up when obtaining the card, the speed of registering for this service and what ID is required to do so also varies from card to card, so please read the terms and conditions. The other disadvantage of prepayment cards apart from obviously not having a credit account is there are a few companies that are attempting to recognise prepayment cards so they can refuse them, this happens much more often if the prepayment card isn’t registered since they can’t match up your name and address with the card details. If a company refuses a fully registered prepayment card I personally would choose not to use them. Different prepayment cards suit different people depending on their spending habits, so why not compare prepayment cards for the best card for yourself (this link details some of the top prepayment cards available in the UK, but there are many more so please shop around).

More Advice:

Please look for unbiased reviews about any company that you’re considering using and ensure you read any agreement and/or terms and conditions very carefully or enquire fully over the phone before handing over your credit or debit card details for a free trial or for any other continuous payment agreement (I personally prefer not to enter into such agreements over the phone however). In other words think carefully before handing over your credit or debit card details, especially if you’re signing up to a free trial. Always follow the exact instructions given when cancelling any continuous payment agreement so there’s no excuses for the company not to cancel. Always take down the full name of the person you’re dealing with over the phone, I would even ask their permission to record any phone conversation when cancelling, this is legal as long as the person agrees. If cancelling through the post, send by recorded / signed for delivery allowing quite a few working days before the end of a free trial period. Be very careful you’re not entering into a contractual agreement with a minimum term without fully knowing what you’re getting into, sometimes this could happen after a free trial ends (read any terms and conditions fully and I recommend avoiding making any agreement over the phone if possible). If you find yourself in a contractual agreement, it will often be almost impossible to cancel until the contract ends if it’s not cancelled successfully before the free trial ends or within a cooling off period and many contracts will require notice to cancel even then. As already mentioned earlier in this article, you are normally protected by a cooling off period when entering into a contractual agreement where you can cancel within a limited amount of time, for full details please click here. If you have further problems cancelling a continuous payment agreement and/or have had money taken against your will, please read the section below for further help.

Money Has Been Taken Against My Will and/or I Cannot Cancel A Continuous Payment Agreement:

Despite not having the backing and protection of a direct debit guarantee, there’s still things some can do to cancel a continuous payment agreement and to get a refund from any money already wrongfully taken. Firstly one should complain to the company in question. In most situations the company will be reasonable and they will cancel the continuous payment without too much of an argument. If you believe that money shouldn’t have been taken, most reputable companies will also refund your money if you explain what has happened. My friend for-instance entered into a continuous payment agreement with LoveFilm.com and money was taken from his bank account via his debit card after cancelling the agreement during a trial period over the phone, on complaining to LoveFilm.com they fully rectified the mistake by refunding his money and the continuous payment agreement was stopped without any further problems (full credit where it’s due).

If a company is being unreasonable where money has been taken against your will and they won’t offer a refund, or if a company refuses to cancel a continuous payment agreement on your request you can still complain to your bank or credit card company that an unauthorised payment has and/or will be taken, plus you can if necessary escalate your complaint the Financial Ombudsman Service (please see link below) and often just the threat of doing this will be sufficient to make many unreasonable companies cancel the agreement and refund your money. Banks and credit card companies often initially won’t help and will explain that only the company taking the payments can stop and refund such payments, but it’s a different situation if it become fraudulent and/or unauthorised, sometimes customers will need to be a little persistent to get banks and credit card companies to help. One solution to stop future continuous agreement payments is for your bank or credit card company to cancel the card in question while sending a brand new card replacement. If you feel that you’ve been tricked into entering into a contractual agreement, again firstly complain to the company and if necessary contact the Financial Ombudsman Service (please see link below).

HELP: Link to The Financial Ombudsman Service detailing how to complain.

Finally please remember that there are also many reputable companies that also offer free trials including those who use continues payment agreements and they suit their purpose when used responsibly, it’s a shame that a few less reputable companies spoil it for everyone else.

Featured On the BBC – The One Show:

The problems associated with continuous payment authorities (also known as continuous payment agreements) was featured on BBC TV on The One Show, for full details and their helpful advice please click here.

Conclusion:

Continuous payment agreements simply don’t provide the customer anywhere near an adequate level of protection in the UK at the time of writing and unfortunately people often don’t realise until there’s a problem where money is taken unknowingly or against their wishes. Sometimes customers don’t even realise that they’ve entered into a continuous payment agreement instead of a direct debit and some less than reputable companies are using this loop hole to their advantage in the UK. In my opinion it’s totally unacceptable for anyone to lose control of their own bank or credit card account to any company that uses a continuous payment authority (also known as continuous payment agreement) and this situation should change urgently so that continuous payment agreements are formally regulated in the same way as a direct debit guarantee so customers are fully protected from unauthorised payments. Like a direct debit guarantee, customers should have the right to formally demand an instant refund when an unauthorised payment is taken and they should also be-able to instantly block future payments on request. Unfortunately there’s no imminent plans for any major changes to continuous payment authorities / agreements and I therefore suggest people write letters to their local MP detailing their concerns. The more people write to their MP, the more chance the problem will be taken seriously by parliament. I do however congratulate the One Show on the BBC for bringing the problem to the attention of the masses, the media is very powerful and when used in the correct manor programmes like this can significantly improve the chances of change for the better.

Legal Disclaimer

This article contains my own personal opinion that cannot be declared as definite fact. Although we try to make all our articles as accurate as possible, it’s is supplied as is and we cannot be held responsible for any mistakes made. The writer of this article is not a qualified financial advisor, for any financial matters we recommend you take appropriate professional advice. The article is without prejudice to any organisation including LoveFilm.com and Experian who have both been referred to as a reputable in this article, it is also without prejudice to any organisation using continuous payment agreements, as we have mentioned, most companies are reputable and it doesn’t make them any less reputable just because they happen to use continuous payment agreements. Many reputable companies offer excellent free trials and again this doesn’t make any company less reputable. It is the purpose of this article to do no harm. We have chosen to link to the BBC’s website since they have featured relevant information and advice regarding continuous payment authorities (also known as continuous payment agreements), we are not linked in any way to the BBC however and if the BBC would like as to remove this link we will gladly do so immediately, please contact us. We have taken some information from The Financial Ombudsman Service’s website, we have linked and given full credit where it’s due, but if the organisation would like us to remove this information and/or any links, please contact us and we will do so immediately. This article, any comments, all other articles, and anything else displayed on this website is also covered by our full legal disclaimer.



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Comment from admin
Time March 4, 2011 at 6:58 am Twitter

Should I Report My Card Stolen To Stop Continuous Payments?

I’ve read that some people suggest reporting your card stolen to stop continuous payments in their tracks. This might work although technically you are also being fruadulent towards your bank or credit card company, so I cannot advise this cause of action. If you use replacement card / protection insurance, then you’re making a false claim which is effectively insurance fraud that is a criminal offence so be warned. Also while waiting for a replacement card you won’t be-able to use it, plus you’ll have to update any legitimate companies of your new card details.

If you however explain to your bank or credit card company the problem and they cancel the card on your request this is a much better and fully legitimate solution.

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