Recurring payments explained

If you’re unaware of what recurring payments are and what they mean, or if like some people, you’re not sure how they’re different from direct debits, you’re not alone. Understanding recurring payments and how they might affect you is important as they could impact your financial health. Read on to find out the meaning of recurring payments, actions you can take if you find a recurring payment, and how they might affect your credit or debit card transactions.

A recurring payment is a way to make automatic payments for goods or services. This type of payment model means you authorise a merchant to take funds from your account on an automatic, regular and ongoing basis in exchange for goods or services.

Recurring payments are also known as continuous payment authorities (CPAs), and they allow companies, such as payday loan providers and monthly subscription services, to withdraw money from your account when they think it is owed to them. If you provide the long number found across your debit or credit card rather than your bank account details, you’re likely to be authorising a recurring payment.

Although you have the legal right to cancel recurring payments, they can still cause problems because you have given your permission for a company to take payment when they think they need to.

It’s important to check your credit and debit card statements regularly so that you can identify any recurring payments and cancel them if necessary.

Recurring payments may look similar to direct debits, but there’s an important difference. While a company can take a recurring payment whenever they think it’s due, the Direct Debit Guarantee, which you have to sign whenever you set up a new direct debit, safeguards you against errors. It means that if there is an error, you can simply contact your bank, who will refund you immediately.

You should be able to spot a recurring payment on your bank statement. Recurring payments will usually be a regular outgoing that isn’t listed as a standing order or direct debit. They can also be taken from your credit card, and might be easier to spot on your credit card statement as you can’t set up a standing order or direct debit on a credit card account.

There will be times when you can’t avoid setting up a recurring payment, so it’s important to research each individual company before you sign up for anything. You could do this by checking if they’re registered with Companies House, by reading user reviews or checking the company’s T&Cs.

You can avoid recurring payments if you’re able to switch your payment method to direct debit. Direct debits are easy to cancel, and if there’s an error with your payment, your bank is obliged to refund the full amount immediately. This gives you more protection in the event something goes wrong with your transaction.

Other ways you can avoid recurring payments are if the company you’re paying allows you to pay using a prepaid card, or simply by making a manual payment each month. These could be safer options, especially if you’re paying companies you aren’t that sure of, although you may miss a payment if you choose not to use an automated method.

There are two ways you can cancel a recurring payment. The first is to contact your bank or credit card provider and ask them to cancel it. The second is to cancel the payment directly with the company you’re paying.

Most companies will allow you to cancel recurring payments, but they may refuse if you’re within a subscription or membership term. For example, if you want to cancel your gym membership after nine months, you might not be able to if you’ve signed up for a 12-month contract. If you’re in a situation like that, and you still want to cancel your recurring payment, you will need to find another way to pay.

Debt charity StepChange provides a free template letter you can use to cancel recurring payments. Simply download and complete the template and send it to the relevant company.

If you’re asking your bank to cancel a recurring payment, the Financial Conduct Authority (FCA) has stated that banks must cancel it if you ask them to. Banks are also required to give a full refund if there are errors in any transactions. If your bank fails to act on your request to cancel a recurring payment, write to the complaints department. If they haven’t resolved the issue within eight weeks, or if they reject your claim completely, you may be able to take it to the Financial Ombudsman.

You’re eligible to reclaim a recurring payment if you’ve tried to cancel it since the government introduced the Payment Services Regulations (as of 2023, this was last updated in 2017). You’re also eligible to make a reclaim if your bank or credit card provider told you that they couldn’t cancel the recurring payment, or if they told you that you’d need to speak to the company directly.

If you’ve already tried to cancel a recurring payment and reclaim your money, your bank will need to review your cancellation before reclaiming your money. If your cancellation was rejected, but you didn’t make a complaint to your bank or credit card provider, it may be best to make your complaint as soon as possible.

So, how much can you expect to receive if you are able to reclaim a recurring payment? The idea is to put you in the same position as you would have been if the bank had cancelled the recurring payment when you initially made the request. This means you should be refunded any extra payments that were taken after this date, along with any interest you were charged.

Recurring payments can affect your debit or credit card transactions as they could take you to, or even over, your credit limit or leave you with insufficient money in your current account. You might also find it difficult to cancel your credit card, as you’ll have an active payment set up on it. Credit cards typically remain open for a few months after you cancel them to ensure that there aren’t any unprocessed payments. If a retailer is still asking for recurring payments, this will count as a new incoming payment that you will need to settle before you can cancel your card.

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No, cancelling your credit card will not automatically stop recurring payments. This is because your credit card will remain active for a few months after any cancellation to ensure all payments are made. The best way to cancel a recurring payment is to contact your service provider.

Ensuring that you’re not caught out by unexpected payments will help you to keep your finances healthy, but it’s also beneficial to grow your savings. At Raisin UK, you can apply for savings accounts from a range of partner banks in one place. Register for a Raisin UK Account to apply in a few clicks, view all your savings accounts in one place and easily fund accounts from different banks.