Blog: Subscription traps: The responsible way to use Continuous Payment Authorities (CPAs)
Daniel Spenceley is CSA Compliance Manager.
Citizens Advice’s recent report on ‘subscription traps’ highlighted worrying issues with poor use of Continuous Payment Authorities (CPAs) by online retailers like Amazon, who came under fire last year for its Amazon Prime ‘trial’, which saw customers unknowingly tied into annual payments. It showed a lack of awareness amongst customers about what the payment mechanism is and how it works, with only 21% knowing the difference between a CPA and a direct debit because of things like unclear terms and conditions and pushy advertising ‘tricking’ people into signing up. 84% of those surveyed didn’t even realise they had agreed to a subscription and 36% had a request to cancel a CPA turned down or ignored.
The benefits of CPAs
There has been a lot of negativity around the use of CPAs in the past, particularly by payday loan providers who, under a CPA, could make repeated attempts at taking different amounts out of customers’ accounts at different times without having to get permission after the initial agreement. However, when consumer credit regulation came under the Financial Conduct Authority’s (FCA) jurisdiction, they took immediate steps to ensure CPAs were being used appropriately, introducing a number of rules specifically for the use of CPA in the payday lending sector.
Of course, when used responsibly, CPAs can be a good option for customers who need to make regular payments totalling a set amount over the short term without the hassle of having to repeatedly agree to payments they are already expecting. Unlike failed direct debits, customers do not incur charges if they do not have the funds when a firm tries to take a payment under a CPA, and they have the right to ask for payments to be cancelled at any time, no questions asked.
How CPAs are used in the debt collection sector
CPAs are used in the debt collection sector as a mechanism for taking pre-agreed consumer re-payments of debts. This is an effective way of ensuring that customers stay on track with repayments, helping them to clear debts as quickly and affordably as possible, without the fear of incurring charges if there are issues with the payment. This is done in the context of FCA regulation which requires firms to provide comprehensive information to customers about the CPA process, including their cancellation rights, as well as giving them the opportunity to consider the terms of the CPA before payment is taken, so that they are fully aware of what is going to happen.
Unlike a subscription that is renewed annually, which can easily be forgotten about as it is not as visible as a direct debit, making debt repayments using a CPA helps to resolve a short term issue. Once the full amount is repaid, the CPA is terminated.
Ensuring customer transparency around CPAs
FCA rules and guidance around the use of CPAs for regulated debt collection are focused on ensuring there is complete transparency between the debt collection agency and the customer. This is mutually beneficial because it means that customers are fully aware of the process and their rights but they are also encouraged to make the firm fully aware of any changes to their circumstances that would see them asking their bank to cancel future payments.
The Citizens Advice report also recommends that banks and card issuers provide training for their frontline staff on cancelling CPAs and ‘mystery shop’ them to ensure the correct procedure is being followed. Although it is difficult to replicate the ‘mystery shopper’ approach in the debt collection sector, the CSA will also help members by including questions on CPA usage as part of the next full revision of the Collector Accreditation Initiative (CAI); an online test which ensures collections professionals have the latest training and skills to go above and beyond compliance.
It is reassuring to see that our sector wasn’t mentioned in Citizens Advice’s report and we are confident that we are pushing best practice when it comes to the use of CPAs. We welcome the recommendations set out, which will ensure that all customers, including those of online retailers, are given the same level of transparency if and when CPAs are set up.