FCA Handbook - CONC 7.6 Exercise of continuous payment authority

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CONC 7.6 Exercise of continuous payment authority

Recovery and continuous payment authorities etc.

(1)
A firm must not exercise its rights under a continuous payment authority (or purport to do so):
1. (a)
  unless it has been explained to the customer that the continuous payment authority would be used in the way in question; and
2. (b)
  other than in accordance with the terms specified in the credit agreement or the P2P agreement.
(2)
If a firm wishes a customer to change the terms of a continuous payment authority it must contact the customer and:
1. (a)
  provide the customer with an adequate explanation of the reason for and effect of the proposed change, including any effect it would have on the matters in CONC 4.6.2R (2); and
2. (b)
  once it has done so, obtain the consent of the customer.

[Note: paragraph 3.9mi of DCG]

A firm should not:

(1)
request a payment service provider to make a payment from the customer's payment account unless:
1. (a)
  1. (i)
    the amount of the payment (or the basis on which payments may be taken) is specified in or permitted by the credit agreement or P2P agreement; and
  2. (ii)
    the amount of the payment (or the basis on which payments may be taken) was referred to in the adequate explanation required by CONC 4.6.2 R; or
2. (b)
  the firm has complied in relation to such a request with CONC 7.6.1R (2);
(2)
request a payment service provider to make a payment to recover default fees or other sums unless:
1. (a)
  1. (i)
    the amount (or the basis on which default fees or other sums may be taken) is specified in the credit agreement or P2P agreement; and
  2. (ii)
    the amount (or the basis on which default fees or other sums may be taken) was referred to in the adequate explanation required by CONC 4.6.2 R; or
2. (b)
  the firm has complied in relation to such a request with CONC 7.6.1R (2);
(3)
other than where CONC 7.6.14R (2) applies, request a payment service provider to make a payment from the customer's payment account of an amount that is less than the amount due at the time of the request, unless the firm:
1. (a)
  1. (i)
    is permitted to do so by the credit agreement or P2P agreement; and
  2. (ii)
    the adequate explanation required by CONC 4.6.2 R indicated that part payment (a sum due which is less than the full sum due at the time the firm's payment request is made) could be requested if the full amount was not available and specified the basis on which and the frequency with which such requests for payment could be made and any minimum amount or percentage that would be requested; or
2. (b)
  the firm has complied in relation to such a request with CONC 7.6.1R (2).
(4)
request a payment service provider to make a payment from the customer's payment account before the due date of payment as specified in the credit agreement or P2P agreement, unless the firm has complied with CONC 7.6.1R (2);
(5)
request a payment service provider to make a payment from the customer's payment account after the due date on a date, or within a period, or with a frequency other than as specified in the credit agreement or P2P agreement and referred to in the adequate explanation, unless the firm has complied with CONC 7.6.1R (2);
(6)
request a payment service provider to make a payment from the payment account of a third party other than as specifically agreed with the third party or agreed with the customer following the third party’s confirmation to the firm that the third party consents to the arrangement.

[Note: paragraph 3.9mi of DCG]

(1)
This rule applies where the terms of a regulated credit agreement or a P2P agreement do not provide for a continuous payment authority and it is proposed that a customer will grant a continuous payment authority to:
1. (a)
  a lender or a person who has permission to carry on the activity of operating an electronic system in relation to lending; or
2. (b)
  a debt collector¸ provided that the debt collector is acting under an arrangement with the lender or the person who has permission to carry on the activity of operating an electronic system in relation to lending, the effect of which is that a payment by the customer to the debt collector amounts to a discharge or reduction of the debt due to the lender.
(2)
The firm which proposes the continuous payment authority to the customer must, before the customer grants the continuous payment authority:
1. (a)
  explain why a continuous payment authority is proposed;
2. (b)
  provide the customer with an adequate explanation of the matters in CONC 4.6.2R(2);
3. (c)
  give the customer information, on paper or in another durable medium, setting out, in plain and intelligible language, the terms of the continuous payment authority and how it will operate; and
4. (d)
  give the customer a reasonable opportunity to consider the explanations required by (a) and (b) and the information required by (c).
(3)
A firm must not propose that a customer should grant a continuous payment authority, and must not exercise rights under such an authority, in respect of repayments under a regulated credit agreement or a P2P agreement, the terms of which do not already provide for a continuous payment authority, unless:
1. (a)
  the customer is in or approaching arrears or in default in respect of the agreement; and
2. (b)
  a lender or a person who has permission to carry on the activity of operating an electronic system in relation to lending, or a debt collector acting under an arrangement with the lender or the person, is exercising forbearance in respect of the customer in relation to the agreement.

(1)
Where a regulated credit agreement or a P2P agreement does not incorporate the terms of a continuous payment authority, CONC 7.6.2AR enables a continuous payment authority to be put in place (for example, for a repayment plan) without necessarily requiring an amendment to the agreement. But CONC 7.6.2AR applies only where the customer is in or approaching arrears or in default, and the creation of the continuous payment authority supports the fair treatment of the customer and facilitates the exercise of forbearance (see CONC 7.3.4R and CONC 7.3.5G).
(2)
CONC 7.6.2AR also permits a continuous payment authority to be granted to a debt collector, provided that the debt collector is acting under an arrangement with a lender or a person who has permission to carry on the activity of operating an electronic system in relation to lending, such that a payment to the debt collector is treated as a payment to the lender, and the requirements of CONC 7.6.2AR(3) are met.
(3)
CONC 7.6.2AR is subject to the rule in CONC 7.6.12R which restricts firms to two requests under a continuous payment authority for a sum due for high-cost short-term credit.
(4)
Whether a forbearance that involves the creation of a continuous payment authority amounts to an agreement that varies or supplements a regulated credit agreement (rather than merely an indulgence to the customer) will depend on the circumstances. If there is an agreement that varies or supplements a regulated credit agreement, section 82(2) of the CCA requires it to be documented as a modifying agreement and CONC 4.6.3R applies instead of CONC 7.6.2AR. Firms should note the possibility that a P2P agreement may be a regulated credit agreement.

A firm must exercise its rights under a continuous payment authority in a manner which is reasonable, proportionate and not excessive and must exercise appropriate forbearance if it becomes aware that the customer is or may be experiencing financial difficulties.

[Note: paragraph 3.9mii of DCG]

Whether exercising rights under a continuous payment authority is reasonable, proportionate and not excessive (as regards the frequency or period of collection attempts), will depend on the circumstances, including:

(1)
whether the firm is aware or has reason to believe that the customer is in actual or potential financial difficulties which the exercise of rights under a continuous payment authority may exacerbate; and
(2)
whether the customer has been notified of the failure to collect the payment and has responded to contact from the firm.

[Note: paragraph 3.9mii of DCG]

A firm is likely to contravene CONC 7.6.3 R if it:

(1)
requests a payment service provider to make a payment from the customer's payment account before income or other funds may reasonably be expected to reach the account; for example, this is likely to be relevant where a firm is aware of the customer's salary payment date; or
(2)
requests a payment service provider to make a payment from the customer's payment account where it has reason to believe that there are insufficient funds in the account or that taking the payment would leave insufficient funds for priority debts or other essential living expenses (such as in relation to a mortgage, rent, council tax, food bills or utility bills); or
(3)
requests a payment service provider to make a part payment (a sum due which less than the full sum due at the time the firm's payment request is made) of the sum due from the customer's payment account before it has made reasonable attempts to collect the full payment of the sum due on the due date; or
(4)
continues to exercise its rights under the continuous payment authority for an unreasonable period after the payment due date without taking steps to establish the reason for the payment failure.
[Note: paragraph 3.9mii of DCG]

Where permissible, a firm should only make a reasonable number of payment requests to a payment service provider to collect a part payment (a sum due which is less than the full sum due at the time the firm's payment request is made) from the customer's payment account, having regard to the possibility that the customer may be in financial difficulties.

[Note: paragraph 3.9mii (box) of DCG]

A firm must not exercise its rights under a continuous payment authority:

(1)
if the customer provides reasonable evidence to the firm of being in financial difficulties and the customer cannot afford to repay the debt; or
(2)
where the firm otherwise becomes aware of the customer being in financial difficulties and that the customer cannot afford to repay the debt.
[Note: paragraph 3.9mii (box) of DCG]

(1)
If a firm becomes aware that a customer is in financial difficulties, the firm should reassess the payment arrangement and should consider reasonable proposals to revise the payment schedule and alternative repayment arrangements.
[Note: paragraph 3.9mii (box) of DCG]
(2)
Where a customer informs a firm of being in financial difficulties, pending receipt of evidence to that effect, a firm should consider suspending exercise of its rights under a continuous payment authority.

In the FCA's view, a firm's inability to recover the whole of the amount due by the end of the next working day after the date on which it was due would indicate that the customer may be experiencing financial difficulties. In such a case, a firm should suspend exercising its rights under the continuous payment authority until it has made reasonable efforts to contact the customer to establish the reason why payment was unsuccessful and whether the customer is in financial difficulties.

[Note: paragraph 3.9mii (box) of DCG]

If the firm and the customer have agreed an alternative payment date as a contingency option if payment is not available on the due date, the firm should suspend the exercise of its rights under the continuous payment authority after the due date, and again after the alternative payment date (if the firm is unable to recover the amount due at the end of that day) and make reasonable efforts (in accordance with CONC 7.6.9 G) to contact the customer to establish the reason why payment was unsuccessful and whether the customer is in financial difficulties.

[Note: paragraph 3.9mii (box) of DCG]

If reasonable efforts to contact the customer are unsuccessful or a customer refuses to engage with the firm and there is no further evidence of financial difficulties, any subsequent exercise of its rights under the continuous payment authority should be reasonable and not excessive, having regard to the possibility that an unresponsive customer may nevertheless be in financial difficulties and that a customer who was not in financial difficulties at the time of contact may subsequently be in financial difficulties.

[Note: paragraph 3.9mii (box) of DCG]

Continuous payment authorities and high-cost short-term credit

(1)
Subject to (3) to (5), a firm must not request a payment service provider to make a payment, under a continuous payment authority, to collect (in whole or in part) a sum due for high-cost short-term credit if it has done so in connection with the same agreement for high-cost short-term credit on two previous occasions and those previous payment requests have been refused.
(2)
For the purposes of (1) and (3):
1. (a)
  if high-cost short-term credit has been refinanced, except in exercise of forbearance, the agreement is to be regarded as the same agreement; and
2. (b)
  “refinance” and “exercise forbearance” have the same meaning as in CONC 6.7.17 R.
(3)
Where a firm exercises forbearance:
1. (a)
  paragraph (1) applies or continues to apply to the agreement; but
2. (b)
  any refusal of a payment request that took place before the time at which the forbearance was granted is to be disregarded for the purposes of (1).
(4)
Paragraph (5) applies following the refusal of two payment requests a firm has made to a payment service provider under a continuous payment authority to collect a sum due for high-cost short-term credit, where the firm proposes to refinance the high-cost short term credit in question in accordance with CONC 6.7.17 R to CONC 6.7.23 R.
(5)
If the firm contacts the customer and, in the course of an dialogue between the firm and the customer:
1. (a)
  the firm notifies the customer of the refusal of the payment requests;
2. (b)
  the firm reminds the customer of the matters in CONC 4.6.2R (2), taking account of any proposed changes to the terms of the continuous payment authority that will apply following the refinance if the customer consents; and
3. (c)
  the customer gives express consent to the firm further exercising its rights under the continuous payment authority following the refinance;
the firm may then make further payment requests under the continuous payment authority following the refinance in accordance with CONC 7.6, and paragraph (1) applies as if the firm had not made a payment request under the continuous payment authority before the refinance.
(6)
This rule does not apply to an agreement which provides for repayment in instalments.
[Note: Until the end of 30 June 2014, transitional provisions apply to CONC 7.6.12 R: see CONC TP 3.4]

Continuous payment authorities and high-cost short-term credit: instalment payments

(1)
Where:
1. (a)
  high-cost short-term credit provides for repayment in instalments; and
2. (b)
  a firm has on two previous occasions made a payment request, under a continuous payment authority, to collect (in whole or in part) the same instalment due under the agreement, which have been refused;
subject to (3) and (4), the firm must not make a further payment request under the continuous payment authority to collect that instalment.
(2)
The firm must not make a further payment request under the continuous payment authority to collect any other instalment that is or becomes due under the agreement, unless any request is in accordance with CONC 7.6 and in the course of a dialogue between the firm and the customer:
1. (a)
  the firm notifies the customer of the refusal of the payment requests;
2. (b)
  repayment of the instalment referred to in (1)(b) has been made using a method other than a continuous payment authority and the customer is not in arrears; and
3. (c)
  where (a) and (b) apply, the firm has reminded the customer of the date and amount of the next instalment.
(3)
If, where the prohibition in (1) applies, a firm exercises forbearance within the meaning of CONC 6.7.17 R the firm must not make a further payment request under the continuous payment authority to collect the instalment referred to in (1) or a payment request for any other instalment that is or becomes due under the agreement, unless:
1. (a)
  a payment request is in accordance with CONC 7.6;
2. (b)
  the firm notifies the customer of the refusal of the payment requests; and
3. (c)
  in the course of a dialogue between the firm and the customer, the firm reminds the customer of the date and amount of the next instalment and following which the customer gives express consent to further payment requests being made under the continuous payment authority.
(4)
If, where the prohibition in (1) applies, a firm adds no charge or additional interest in connection with missing a payment on the due date, the firm must not make a further payment request under the continuous payment authority to collect the instalment referred to in (1) or a payment request for any other instalment that is or becomes due under the agreement, unless:
1. (a)
  a payment request is in accordance with CONC 7.6;
2. (b)
  the customer has missed making a payment on the due date; and
3. (c)
  in the course of a dialogue between the firm and the customer, the firm reminds the customer of the date and amount of the next instalment and following which the customer gives express consent to further payment requests being made under the continuous payment authority.
[Note: Until the end of 30 June 2014, transitional provisions apply to CONC 7.6.13 R: see CONC TP 3.5]

(1)
Subject to (2), a firm must not request a payment service provider to make a payment under a continuous payment authority to collect a sum due for high-cost short-term credit if that sum is less than the full sum due at the time the request is made.
(2)
Where a firm:
1. (a)
  following contact with a customer, refinances the agreement in accordance with CONC 6.7.17 R to CONC 6.7.23 R by granting an indulgence which allows for one or more repayment of a reduced amount under a repayment plan;
2. (b)
  notifies the customer of the number and frequency of repayments and their amount under the repayment plan; and
3. (c)
  the customer gives express consent to the firm to make payment requests to collect the repayments notified under the plan;
  [Note: Until the end of 30 June 2014, transitional provisions apply to CONC 7.6.14 R: see CONC TP 3.6]
paragraph (1) does not prevent the firm from making a payment request in accordance with CONC 7.6 under a continuous payment authority to collect repayments of those amounts in accordance with the plan.

(1)
CONC 7.6.12 R, CONC 7.6.13 R and CONC 7.6.14 R do not prevent a firm accepting payment (including a part payment) from a customer using a means of payment other than under a continuous payment authority. If, for example, a customer consents separately that a single payment of a specified amount may be taken on the same day or on another specified day using his or her debit card details, this is excluded from the definition of continuous payment authority.
(2)
CONC 7.6.14 R does not prevent a firm from making a payment request concerning a sum due where the firm has varied an agreement so that the sum due is less than it was before the variation.
(3)
Firms are reminded of their record-keeping obligations under SYSC 9.1.1 R and SYSC 9.1.1AR (general rules on record-keeping) which in particular require sufficient records to be kept to ascertain that the firm has complied with all obligations with respect to customers. These should include, for example, arranging to keep records of payment requests (including refusals of payment requests) made under continuous payment authorities and to keep suitable written or other records of the consents referred to in CONC 7.6.1 R, CONC 7.6.12 R, CONC 7.6.13 R and CONC 7.6.14 R.

(1)
Paragraph (2) applies where a guarantor has provided a guarantee or an indemnity (or both) in respect of high-cost short-term credit. (See CONC 7.1.4R for the meanings of “guarantor” and “guarantee”.)
(2)
CONC 7.6.12R and CONC 7.6.13R apply to a continuous payment authority granted by the borrower and to a continuous payment authority granted by a guarantor separately. This means that the firm may make up to two requests for payment under a continuous payment authority granted by the borrower and, if those requests are unsuccessful, up to two requests for payment under a continuous payment authority granted by the guarantor.

Cancelling a continuous payment authority

A firm must not by any means improperly or unfairly inhibit or discourage a customer from cancelling a continuous payment authority including by:

(1)
misleading the customer, expressly or by omission, regarding the right to cancel and how it may be exercised; or
(2)
failing to respond promptly to requests by or on behalf of the customer to amend or cancel the continuous payment authority; or
(3)
intimidating a customer who wishes to cancel the continuous payment authority; or
(4)
requiring customers who wish to cancel the continuous payment authority to go through an unduly complicated process.
[Note: paragraph 3.9miv of DCG]

A firm must cease to exercise its rights under the continuous payment authority once it is notified that the continuous payment authority has been cancelled.

[Note: paragraph 3.9miv of DCG]