Payment Unkind – What if you can’t pay on payday?

One of the most troublesome – and least regulated – issues with payday loans is recurring payments; and it’s the most difficult to stop. They are not Standing Orders nor Direct debits, but Continuous Payment Authority (CPA) contracts.

As many hundreds of thousands of people across the UK are aware, including a great number of Harrington Brooks clients, taking out a payday loan is a short-term solution that can cause long-term problems.

Payday loan companies are getting some bad press; but they provide a service the mainstream lenders do not.

The convenience of quick and easily-available funds to people who have been refused credit by high-street banks has been a successful business model – for the payday companies themselves certainly. Wonga, the most prominent payday loan company (through a combination of primetime TV ads and sponsorship of Ant & Dec’s ratings-troubled show Red & Black) announced a profit rise from 2010 to 2011 of nearly 270%.

But despite benefiting many consumers who manage to repay their loan as contractually agreed, for those who may suffer hardships or changes in circumstances that prevent repayment, the consequences of falling behind are dire.

With APRs exceeding 4000%, companies have profited from circumstances where borrowers have not been in a position to repay. The flip side of this is that people in debt, very often finding themselves in a vicious cycle of taking out more payday loans to pay off existing payday loans, can quickly find their overall level of debt doubling, tripling, quadrupling…

Continuous Payment Authority (CPA)

Particularly troubling for many is the manner of collecting the money owed. When borrowers are granted a payday loan, the payments are of course scheduled for the day they get paid. But the method of taking payment is a Continuous Payment Authority (CPA), which authorises recurring payments to reclaim money on the due date, and afterwards: so that payments are attempted each day until the money is taken.

Cancelling the card or reporting it lost is not a guaranteed way to prevent payments going out either. For many people, finding that their bank account has been cleaned out as soon as payday arrives, when they thought the payment had been stopped, is a shocking and worrying experience.

Even if a new card is issued, many Harrington Brooks customers have found that money still is taken. Either through the payday loan company having the sort code or bank account details, or through having a service to provide up-to-date card details (some insurance companies, for example, use a service where a card company will automatically update the insurer with any new card issued – in this case, to make sure people are not left without insurance if their card expires) the potential risk remains.

The Cost of Failure

Consumer group Which? has called for CPAs to be made as easy to cancel as direct debits. By law, at least, they already are: the 2009 Payment Services Directive gives people the right to prevent any payment leaving their bank account.

But despite appearances, this doesn’t mean banks will cancel the payments. They argue that, unlike a direct debit (an agreement made through a bank) a CPA is simply between purchaser and a provider, and because the bank is not part of the agreement, they cannot bring it to an end.

The Office of Fair Trading has called for agreement (if not regulation) on the use of CPAs, particularly concerning cancellations. A recent voluntary agreement by payday loan companies included making terms more clear, and offering repayments over a longer period, when necessary. But it did not include any measures on CPAs at all.

Just this week, the OFT has requested that banks work closer with customers, who now state that if the customer gives them notice of the payment being debited, they stop it – however, it is stop one-off payments only: the customer still is still responsible for cancelling the CPA.

Many payday loan companies who have signed up to the lending code for small cash advances say that they will do everything they can to prevent recurring payments if informed Harrington Brooks are dealing with a person’s debts.

Safeguarding your Wages

  1.  Contact your payday loan provider and ask for deferment of the payment (although this usually involves a charge); or, failing that…
  2.  Contact your bank to request cancellation of the Continuous Payment Authority (CPA); or, failing that…
  3.  Open up a basic bank account with a different bank (one you do not have any debt with) and have all your payments made to this new account.