A major investigation by a British newspaper has found that many banks, insurance companies and utility providers are giving customers the wrong information about their rights when it comes to cancelling auto renewal annual payments for their products.
Millions of Britons pay for things like car, home or travel insurance; breakdown cover; subscriptions; and even gym memberships by direct debit or standing order. But millions of others enter into so-called auto renewal “continuous payment authorities” – which are also called recurring payments – to pay for these services. These payments are set up using either a credit or debit card. This means you are authorising the service provider to take the payments for the service directly and without notifying you of its intention to do so.
Many companies – the major high street banks included – have apparently told customers that once a continuous payment has been authorised neither they nor the customer concerned can cancel it. They say that this can only be done by the business which is taking the money. This, however, is wholly inaccurate.
In reality, any consumer can go directly to the financial provider and demand that an auto renewal payment is cancelled. This fact has been reiterated by the Financial Services Authority which says:
Your bank or card issuer must then stop them – it has no right to insist you agree this first with the company taking the payments.
An investigation by The Guardian found that thousands of people had been conned by a free face cream trial. This locked them in to continuous payments of £70 a month on their credit and debit cards. Another inquiry discovered that thousands of customers of major and trusted companies (including the AA and O2) had money still being taken from their cards after they had cancelled the service.
Some of the worst instances of abuse of the auto renewal/recurring payments system have come from companies based outside the UK. There have been reports of hundreds of thousands of people signing up online to what they thought was a free trial only to find money being taken off their card every month thereafter. No way was provided to contact the business concerned to get these payments cancelled.
Stay safe: avoid continuous payments
While the banks claim that they have cleaned up their acts, there is no substitute for staying safe by avoiding these authorities altogether. Most reputable companies will offer alternative ways of paying for a service so you should try to:
Pay by direct debit. If the provider accepts direct debit payments, then you should always try to use this option. More and more companies are joining the direct debit scheme and the Direct Debit Guarantee makes it clear that you should find it easy to cancel and that if there is a problem or error, your bank must refund the full amount immediately.
Pay manually. If you can’t pay by direct debit, then find out if the company concerned will accept a manual payment each month or if you can pay by standing order. While manual payments can be a bit of a hassle, they are far safer than continuous payment authorities.
Use a prepaid card. Failing either of the previous two options, you should consider one of these. They are not credit or debit cards technically, but cards which carry either the Visa or MasterCard symbols which you are able to top up with money. They don’t allow you to exceed your credit balance and you don’t have to go through a credit check to get one. One note of warning: not all prepaid cards allow recurring payments but many do and are safe way of ensuring that you don’t end up losing more than you can afford to an unscrupulous business.
I have a continuous payment authority and I want to cancel
You have a legal right to do this and companies are obliged under FSA rules to comply.
Cancel the payment with the company taking the money. Just contact the business and ask it to stop taking payments. You are on shakier ground if you have entered into an annual contract – for, say, a gym membership – but if you are not then you should let them know that you are officially disputing the transaction and are prepared to take the matter further.
If this first approach fails, then contact your bank or credit card provider and demand that it cancels the payment authority. If the bank fails to do this, then it is legally obliged to refund any payments taken after you have made the request.
Why else is an auto renewal a bad idea?
These auto renewal agreements may sound convenient but it also means that you deny yourself the opportunity of renegotiating the monthly or annual fee. Consider your car insurance for example. It’s generally accepted that the best way of keeping your premium down is to shop around each year as you approach your renewal. Insurers have a habit of discounting the first year to lure you in and then radically increasing the premium thereafter. Locking yourself in by agreeing to auto renewal gives the insurer the upper hand – don’t do this! Stay flexible and simply renew on a year by year basis. You’ll save a fortune.
Oliver Jones has written for Solution Loans since 2015. His passion for personal finance comes through in the 150+ blog posts he's written since that time. His talent for explaining all things money means he's covered topics as diverse as...Read more about Oliver Jones