How Payday Lenders Can Raid Your Bank Account
If you ever took out a payday loan, how closely did you look at the terms and conditions you accepted before the loan was paid out? If, like most people, you either skipped them or just gave them a brief read, you may be surprised to find out that when you clicked on 'accept' you effectively passed the keys to your bank account to the payday loan issuer.
This is because of a mechanism known as Continuous Payment Authority (CPA) which is set up as part of the loan.
It is this CPA that allows the loan to be automatically repaid on the due date, by authorising the lender to withdraw the cash from your account. This is all well and good, if all goes to plan, and makes the whole loan process easy and convenient.
The problem comes if you get into trouble repaying your loan. The CPA stays active until the original loan, plus all interest and charges, is cleared. Under the terms of the CPA, the lender can withdraw any sum up to the total amount owed, but is not required to request the full amount.
Let's say you owed £1000, but only had £500 in your account. It's plain you can't afford to repay the loan, but the lender is perfectly within their rights to take that £500 in part payment, leaving the account completely empty. They can even keep trying for smaller amounts, in some cases up to ten times a day, in an attempt to remove any money as soon as it is deposited.
UPDATE: Under new FCA rules, only two CPA attempts may be made, and partial withdrawals are not allowed.
The good news is that the CPA can be cancelled by the customer (something that isn't always made as clear as it could be by the lenders) simply by instructing your bank to do so, although this may take a few days to action.
So, if ever you sign a loan agreement of any kind, either digitally or on paper, be sure to check if it refers to setting up a CPA, and if it does, be sure you understand how it works and whether you're happy with it.
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