Recurring Payments

What's the difference between Direct Debits and regular payments from a debit or credit card? If you don't know, beware! You could end up with a 'Recurring Payment' you've no right to cancel. This guide shows you how to detect, avoid or fight them.

• Three types of payment
• The Recurring Payment problem
• Spot Recurring Payments
• Alternatives
• Cancelling Recurring Payments
• Cancel my credit card instead

Q. Recurring Payments vs Direct Debits?

A. Many wrongly assume all monthly payments to companies are Direct Debits. 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 Direct Debit Audit 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 for a fixed or variable amount (see the Direct Debit guide). You've a right to contact your bank to cancel at any time you like, and if there's an error you get a full refund from the bank, rather than the company itself.

• Recurring Payments. You give companies your card details
  
  The key to Recurring Payments, known as Continuous Payment Authorities until a few years ago, is the company will ask for the long number across the centre of your credit or debit card rather than your bank details. If this happens, you need to be aware an entirely different set of rules come into play.
  

Q. Why are Recurring Payments so dangerous?

A. 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 seperate transaction, so there's no easy 'off-switch' at your bank. The company's registering a charge on your card, and if it wants to keep charging, it can. In other words....

You CAN'T CANCEL them. Only the company you're paying can do that!

This is because there's no automatic right to ask your bank to stop the payment, it's all about your relationship with the company you're paying. So if you have a problem, you need to dispute it rather than just cancel.

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 nightrmare... if the company's difficult to contact, going into administration or, worse still, dodgy, you could be stuck paying again and again for something you don't need or want with no recourse.

At that point you need to get into a dispute procedure with the bank, and it can sometimes mean huge effort to stop it.

The worst cases come from when it's a little known company, based outside the UK, so there's less legal recourse. Speaking frankly, one of the biggest danger zones is some pornography websites, they exploit the embarassment factor which stops people complaining, leaving some paying unnecessarily for years.

Typical Recurring Payment problems from the MSE Forum...

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

We are having problems with this ourselves. An ex employee of mine must have set up a Recurring Payment to pay his mobile phone bills for work purposes.

When he left the company I cancelled his company credit card, yet even so the mobile provider kept taking the monthly money out. It was his personal phone, paid for by us. The bank tell me there is nothing they can do and it has to be done by this ex employee.

JoeTeeee – "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!

The address used was one that I moved out of a similar number of years ago, and it's only by luck there are still people there who knew how to contact me. By the time I got the bill, the minimum payment date had already passed, so I am now expected to pay interest on a payment for a credit card that I cancelled ages ago.

The problem is I had my AA membership put into hibernation when I received 3 years free RAC cover with a new car, and this month the remaining period of cover elapsed. So this is the first time the AA had taken out payment in over four years.

How can a credit card company can take payment, and send out a bill, for someone for whom the last details they had are over four years old, on a cancelled card? To add insult to annoyance I phoned the AA to get them to refund the payment to the old card and take payment from my current card, and they said they can't refund onto the old card as it has been cancelled!

I can't imagine I am the only person that this sort of thing has happened to, and how many people currently have old credit cards running up interest and bad credit scores without their knowledge? Scary. It's Direct Debit for me from now on.

Q. How to check for Recurring Payments?

A. 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, so 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.

Q. How do I avoid recurring payments?

A. 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 and when it fell into trouble, many were left worrying they wouldn't be able to cancel (see the Cancelling Setanta news story).

Yet in general recurring payments are best avoided if possible. Here are three quick steps...

• Switch to Direct Debit
  
  If the company is a member of the Direct Debit scheme, try switching to this instead. 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.
  
  
• Can you pay manually?
  
  Will the company allow you to make a manual payment each month, or even a standing order? It’s safer but a hassle, so if you’re only paying pennies anyway, the risk of sticking with the recurring payment is less.
  
  
• Consider using a prepaid card.
  
  This is a relatively new type of plastic, that you top-up with cash before spending. Crucially that means you can't spend more than is on the card and no credit check is done.
  
  Using these for recurring payments is as yet untested, and not all cards will allow it. However it could prove a safer way to have recurring payments for companies you're less sure of, as 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 guide, and discuss successes or failures of this in the recurring payment discussion.

Q. How do I cancel a Recurring Payment?

A. It won't always be a disaster story, so don't panic straight away.

• Step 1. Contact the company

  The first step is the easy one; simply contact the company and request it no longer takes the payment. Most legitimate companies will accept this.
  
  Though if you are within your contract and have agreed to pay (e.g. a year's digital TV subscription) then it may refuse. In which case think carefully about taking further action, as it may leave you in breach of contract, and owing the company money. Otherwise, follow the steps below.

• Step 2. Inform the company you dispute the payments
  

  Officially let it know you dispute the transaction, preferably in a written form as well as on the phone. In the best case scenario it may simply give up and cancel the account. If not, then you will need to escalate this further.
  

• Step 3. Dispute the transaction with the credit/debit card company

  Inform your bank or card company you want to dispute these "unauthorised transactions". Some banks will instantly act, others not. Yet under the Banking Code it's then their responsibility to sort it out.

  However it can be drawn out and may mean Visa, Mastercard or American Express, the companies behind the electronic payments process, get called in and their disputes systems get in gear. Do record when you asked for the payments to be stopped as you want a full refund from that date.

• Step 4. 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 Financial Fight Back 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.
  

There are plans to make it easier to stop such transactions, and to force credit card companies to take instant action, but negotiations between Visa and Maestro have become bogged down, and sadly no changes are planned anytime soon.

Q. Can't I just cancel my credit card to stop it?

A. While this may work, it's drastic action and it doesn't always work. When you cancel a credit card, the account remains open for a few months to ensure that 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 dispute the transaction with the card company, then you know that the issue is fully and finally dealt with.