Recurring Payments Beware regular payments from plastic

Subscriptions such as web services, telecoms or payday loan repayments via your plastic are called recurring payments (or continuous payment authorities) and can be a nightmare to cancel.

Yet you've a legal right to cancel, and can reclaim any payments that weren't kaiboshed when you requested. This guide shows you how to detect, avoid or fight them (also see Cancel Direct Debits).

Recurring payments or direct debits?

Not all monthly payments to companies are equal. There are actually three types of regular payments, and the levels of protection you get vary from hugely pro-consumer, to a virtual licence for companies to steal your cash (full breakdown in the Cancel Direct Debits guide).

• Standing orders.You set up via your bank
  This is an instruction from you to your bank to pay a fixed amount out at regular intervals. It's usually free and you can cancel it whenever you like.

• Direct debits.You sign a direct debit mandate
  This is where you let companies take money from your bank account for a fixed or variable amount (see the Direct Debit guide). You've can cancel at any time by contacting your bank to cancel at any time you like. The Direct Debit Guarantee means if there's an error you get a full refund from the bank, not the company itself.

• Recurring payments. You give companies your card details
  The key to recurring payments (AKA 'continuous payment authorities') is the company will ask for the long number across your credit or debit card rather than bank details. If this happens, it's a recurring payment and could be a nightmare - though you do have the legal right to cancel, so you should enforce this.

Recurring payments can be a nightmare

Recurring payments effectively mean you give a company your debit or credit card details and say "take a payment whenever you think I owe you".

While money comes out regularly, each payment is a separate transaction. So it can be hard to get anyone to hit the 'off switch' when you no longer need to pay for the good or service - especially if the company you're paying doesn't play ball.

Hopefully, reputable companies will stop filching money when asked. Yet issues galore can crop up - it only takes a small glitch for it to become a nightmare, with some companies difficult to contact, in financial difficulties or, worse still, plain dodgy

The worst cases come from when it's a little-known company, based outside the UK. Speaking frankly, the biggest danger zones are some pornography websites. They exploit embarassment, stopping people complaining and leaving some paying unnecessarily for years.

Here are some typical recurring payment problems from the MSE Forum...

"The bank tells me there's nothing I can do."

An ex-employee of mine set up a recurring payment to pay his mobile phone bills for work purposes. When he left, I cancelled his company credit card, yet the mobile provider kept taking money out monthly. The bank tell me there is nothing they can do and it has to be done by this ex-employee.MoneySaver 'S and C'

"I'm being charged by a card I cancelled four years ago!"

I've found out the hard way about the perils of a recurring payment. Yesterday I received a credit card bill, with a payment taken from it, for a credit card that I had cancelled FOUR years ago!

I put my AA membership into hibernation when I got 3 years free RAC cover with a new car. When that elapsed, so AA took its first payment in four years, and the credit card bill was sent to my old address.

To add insult to annoyance I asked the AA to refund the payment to the old card (and pay from my new one) and was informed they can't as it has been cancelled! Scary. It's direct debit for me from now on.JoeTeeee

If you've had any nightmares trying to cancel recurring payments, please let us know in the forum discussion

How do I cancel a recurring payment?

Despite the heap of disaster stories about recurring payments, don't panic if you have one...

You have a LEGAL RIGHT to have payments cancelled.
Even if companies refuse, banks MUST cancel them for you.

Step-by-step recurring payment cancellations

Technically, steps one and two below are interchangeable — you don't need to have gone to the retailer before contacting the bank. However in reality, unless the company is playing silly beggars then this probably the easiest path to getting the situation sorted.

1. Dispute the payment with the company you pay

   This is the easiest way to start. Simply contact the company and request it no longer takes the payment. Most legitimate companies will accept this.
   
   It may refuse if you're within a contract (eg, a year's digital TV subscription). In which case, think carefully about taking further action. It may leave you in breach of contract and owing the company money.

   If this isn't the case, you can officially let it know you dispute the transaction, in writing or by phone. In the best case scenario, it may simply give up and cancel the account.

2. Ask your bank or credit card provider to cancel it

   EU regulations, which are now part of the rules in the UK, mean banks have a legal duty to sort out recurring payment cancellations for you, when you ask it to, and you can do this without contacting the retailer first. The regulator, the FCA says:

   "You have the right to cancel them directly with your bank or card issuer by telling it that you have stopped permission for the payments. Your bank or card issuer must then stop them – it has no right to insist that you agree this first with the company taking the payments"

   This should be where the problem stops. Yet banks are breaching these rules; lobby group Consumer Focus reported in May 2012 that 44% of bank staff didn't give the right answer when asked how to cancel recurring payments, while 28% wrongly said you must go to the retailer. So if this doesn't work...

3. Complain to the Financial Ombudsman

   The last resort is to make a complaint to the completely free Financial Ombudsman Service, the independent arbiter of financial disputes. Find out how in the Your Financial Rights guide.

   Hopefully, just the threat of this to your credit card provider should be enough in the first place. If not, make a complaint. There's no cost, and it's very easy to do. You could also be awarded compensation for your time and hassle - so always inform it if you've spent serious hours dealing with it.

Claim back any overpaid recurring payments

If you ask a bank or credit card provider to cancel a recurring transaction and they fail to do this, any payments taken after this are considered "unauthorised transactions". This may happen either due to banks not doing their duty, or back-end systems taking a while to stop payments.

However, under the Payment Services Regulations you can claim back wrongly taken payments, plus ask for interest on top (both any extra you paid out if you ended up borrowing money, and interest you could have earned). Record when you ask for payments to be stopped, then when you complain — either to the bank or the FOS — request a full refund from that date.

The regulations set a time limit of 13 months to be able to claim back unauthoruised transactions. Though if you are feeling bold, the rules came into force in November 2009, so it is worth a try to extend your claim back until then.

If you've had any successes cancelling or claiming back overpaid recurring payments, please let us know in the forum discussion

Avoid recurring payments in future

Sometimes it is impossible to pay for a service without a recurring payment. A good example is a subscription to an overseas newspaper. In which case, if the company you're paying is a legitimate one, the risk is lessened. If not, avoid like the plague.

Yet even big companies can have problems. TV station Setanta Sports had many customers on recurring payments. When it fell into trouble, many were left worrying they wouldn't be able to cancel (see the Cancelling Setanta news story) - though of course rules say banks must help.

Yet as this can still be a laborious process, recurring payments are best avoided if possible. Here are three quick steps...

1. Switch to direct debit

   If the company accepts direct debits, try switching to this. Over the last few years many smaller companies have joined the direct debit scheme, so while you may've initially had no choice, things could've changed.
   
   The Direct Debit Guarantee says that, as well as being easy to cancel, if there is an error with the payment then your bank must refund you the full amount immediately, giving you good protection in case something goes wrong..

2. Can you pay manually?

   Will the company let you make a manual payment each month, or even a standing order? It’s a hassle, but safer. Although if the payments are small, there's less of a risk.

3. Consider using a prepaid card

   This is a relatively new type of plastic that you top-up with cash before spending. Crucially, you can't spend more than is on the card and no credit check is done.

   Not all these will allow recurring payments, but if they do it could prove a safer way to have recurring payments for companies you're less sure about. If you run into difficulty cancelling a recurring payment you won't be left out of pocket.

   Read full info on the current top Prepaid Cards, and discuss successes or failures in the recurring payment discussion.

How to spot a recurring payment

The obvious check is one of memory about how exactly you set the payment up.

If you gave a credit or debit card number, not bank account and sort code, it's a recurring payment.

Of course, for older transactions it isn't always easy to remember. Check your statements to see what's coming out regularly.

• Credit cards.
  Any regular payment made from your credit card is, by definition, a recurring payment. .

• Debit cards.
  Those who bank online can usually click for a list of standing orders and direct debits; those who bank in branch, just ask the staff. Quite simply any regular payments coming from your statement that aren't listed are recurring payments.

Can't I just cancel my credit card ?

While this may work, it's drastic action and isn't guaranteed to sort the problem. When you cancel a credit card, the account remains open for a few months to ensure there haven't been payments made on the card which haven't yet processed.

If the recurring payment is still being requested by the company, this will count as a new payment coming in and the card company could keep the account open and ask you to settle it.

It's far better to contact the retailer or bank to enforce your right to have payments cancelled. Then you know that the issue is fully and finally dealt with.