Direct Debits, Standing Orders & Continuous Payment Authorities (CPAs): what you need to know
When it comes to paying your gas bill, your mobile phone contract or even your insurance premiums, these days there is more than one way of doing it.
There are three main ways you can make payments for regular bills:
- Direct Debits
- Standing orders
- Continuous Payment Authorities (CPAs).
These different approaches could provide a handy way of making sure any regular payments that need to leave your account do so on time every month. However, they don't all work in the same way.
Before agreeing to set up a Direct Debit, standing order or Continuous Payment Authority, it's important that you know exactly what is involved - and how you can cancel one in the event that you no longer need it.
Direct Debits explained
Direct Debits could provide a handy way to pay regular bills from your bank account, e.g. your Council Tax or TV licence.
How can I set up a Direct Debit?
To set up a Direct Debit, you'll need to sign a Direct Debit Mandate form by speaking directly to your bank or visiting your local branch.
How does a Direct Debit work?
A Direct Debit can be set up to make a payment on a particular date every month, quarter or year. Once it's been agreed according to your instructions, the money will then be automatically taken from your account by the company you're paying.
With a Direct Debit, the person or company you're paying can change the details of the payment, e.g. the payment amount or the date it's taken. However, they must give you advance notice before they do this.
What is the Direct Debit Guarantee Scheme?
The Direct Debit Guarantee covers all banks and building societies that accept instruction to pay by Direct Debit. The Scheme is designed to protect Direct Debit users, laying out their rights and responsibilities.
Under the Scheme:
- If there is a change in the amount to be paid or the payment date, the person/company receiving the payment must give you advance notice - by writing to you, telling you in person or giving you electronic notice.
- If the person/company receiving the payment or the bank / building society makes an error, you are guaranteed a full and immediate refund of the paid amount.
- If you receive a refund that you're not entitled to, you must pay it back when asked.
How can I cancel a Direct Debit?
You can cancel a Direct Debit at any time. To do this, you should contact your bank or building society. However, you should tell the person or company receiving the payment beforehand; otherwise you could face fees or charges if a bill goes unpaid.
Standing orders explained
You could set up a standing order to make a regular, fixed payment from your bank account, e.g. your monthly rent.
How can I set up a standing order?
You can set up a standing order by signing a form given to you by the person or company you're going to pay, or by setting one up directly with your bank (e.g. by visiting your local branch or over the phone).
How does a standing order work?
With a standing order, you can arrange for fixed payments to be regularly taken from your account on set dates: e.g. the 28th of every month.
However, unlike a Direct Debit, you are the only person who can change the details of the standing order: the size of the payment or the date it leaves your account.
How can I cancel a standing order?
If you decide to cancel a standing order, you can do so at any time. You'll need to speak directly to your bank or building society - but again, you should let the person or company that usually receives the payment know in advance, so you don't risk any fees or charges for non/late payment.
Continuous Payment Authorities explained
Continuous Payment Authorities - commonly known as CPAs - allow businesses to take regular payments using your credit/debit card, without needing authorisation for each payment. CPAs are often used for 'rolling' payments such as gym memberships, mobile & broadband services and magazine subscriptions.
How can I set up a Continuous Payment Authority (CPA)?
You can set up a CPA with a business or organisation - e.g. your gym or broadband provider - if you agree to them taking regular payments from your bank account.
How does a Continuous Payment Authority (CPA) work?
CPAs are often confused with Direct Debits, but they don't offer the same guarantees: companies have been able to take more from your bank account, or change the date they do it, without giving you notice.
In December 2012, the OFT (Office of Fair Trading) issued a set of principles for businesses who use CPAs, making it clear exactly what their legal rights and responsibilities are to customers.
As part of the guidelines, businesses should:
- Be fully transparent about the terms of a CPA before a customer agrees one
- Ensure customers have given informed consent to the use of a CPA
- Provide enough notice of any changes to a CPA, e.g. the timing/amount of payments
- Give clear and prominent information about how a CPA can be cancelled.
How can I cancel a Continuous Payment Authority (CPA)?
You can cancel a CPA by contacting either the company it's set up with or your bank / card provider. You should tell the bank or card issuer that you've stopped permission for payments to be taken. You don't have to agree this with the company first - but it's a good idea to also tell them you want to cancel the CPA.
What can I do if I'm having problems cancelling a Direct Debit, standing order or Continuous Payment Authority?
If you have any problems cancelling any of the above payment methods with your bank, building society or the company taking the payments, then remember that the law is on your side. The Payment Services Regulations (PSR), which came into effect on 1st November 2009, are designed to help protect consumers.
If a company fails to follow these rules, such as not refunding a payment after you asked for the Direct Debit, standing order or CPA to be cancelled, then you can take your case to the Financial Ombudsman Service.
Do you know where you stand?
If you're concerned about a current Direct Debit, standing order or CPA you have, or you're having trouble cancelling one, then you should get some professional advice. It's important to keep track of all your payments from month to month - and bear in mind that you can cancel any of these payment methods whenever you like should you change your mind about the way you want to pay.
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