Using this little-known trick, companies can take automatic payments from your credit card - even after you've closed it down!
Imagine this. You pay off your credit card, close down the account and cut up the card. All is settled until months later, out of the blue, you get a statement from the credit card provider, demanding payment for a new transaction on the card. It's for a 'recurring payment' - and it's one of the slimiest credit card stings ever hidden in the small print.
How recurring payments work
On the surface, a recurring payment works in exactly the same way as a direct debit. You authorise a company to take regular payments - say, for an annual subscription or service - from your credit card. Simple, easy, convenient... until you want to cancel it.
Unlike a direct debit, a recurring payment does not automatically cease to exist when you close your account down. You cannot even cancel it by notifying your credit card provider that you want it to stop. The only way to cancel a recurring payment is to ask the original merchant you set it up with to stop taking the payments.
A dangerous system
As if that wasn't enough, there are two big dangers associated with this method of payment:
- You and you alone are responsible for keeping a record of all the recurring payments you have set up on your card. The credit card provider will not keep track of them. And if you don't know which companies are authorised to take recurring payments from your card, then you will not be able to cancel the payments.
- If you cancel the account and then, say, move house, your statement will go to your old address. So you will have no way of knowing that a new payment has been taken from your card, and that you need to pay it off. This could lead to a black mark being placed on your credit record, which could cause you serious problems if you try to take out a new card or borrow a mortgage in the future.
So if you're ever faced with the option of making a regular payment by credit card or direct debit, my advice would be to choose the direct debit route every time.
Too late
If this advice comes a little too late for you - as it did for one lovemoney.com reader, Neil D. - then what can you do about it?
Neil wrote in to lovemoney.com because, six months after cancelling an MBNA credit card, he received a statement stating that more than £90 had been paid from the card to a car breakdown company. This was for cover he no longer needed or wanted.
What to do
What should you do if you find yourself in this situation?
1. Dispute the payment with the company that took it.
Believe it or not, you are much more likely to get a refund this way than arguing with the credit card company that you closed the account or weren't aware that the payment would recur. Here's how to argue your case:
- A reputable company will send you a letter warning you that your subscription is up for renewal, and that payment will be taken on a particular date. If you didn't receive this letter, you have a case for disputing the payment.
- Depending on what you have bought, you should have a cooling off period of at least seven days, where you can cancel the policy or return the goods. Contact Consumer Direct to double-check your rights, if you find this cooling off period is disputed. You may even have longer than seven days.
- Finally, try explaining your situation calmly and reasonably. For example, Neil, our 66-year-old reader, no longer drives a car and therefore has no need for car breakdown cover. Clearly, he would not have renewed this cover voluntarily. Most reputable companies will take a reasonable attitude when there is a clear case for a refund like this. If they don't, you could try reporting them to a relevant regulator or trade body.
2. Dispute the payment with the credit card provider.
If you fail to get a refund from the company that took the payment, it's still worth at least trying to get a refund from the credit card provider - although it may be difficult.
- If you have cancelled your card, you could argue that you hadn't realised that the payment would be taken. This is especially true if it is obvious, as in Neil's case, that you would never have knowingly renewed the subscription or service.
- Alternatively, do bear in mind you have Section 75 Protection for payments over £100. So if the product cost more than £100 and was misrepresented to you in any way, you could dispute the payment on these grounds.
Using these arguments, I am pleased to say Neil successfully managed to get his payment refunded - but only after Citizens Advice got involved.
Many of you with recurring payments on your cards may not be so lucky. So watch out for this nasty little credit card sting - and stick to direct debits whenever you can!
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