PAY DAY LOANS &

CONTINUOUS PAYMENT AUTHORITY (CPA)

INFORMATION FOR ADVISERS

DEFINITION:

Pay Day Loan

- Noun:

A relatively small amount of money lent at a high rate of interest,

on the agreement that it will be repaid when the borrower

receives their next wages.

Also known as:

• Payday advance

• Salary loan

• Payroll loan

• Short term loan

• Cash advance loan

HOW DO THEY WORK?

• Short term advance

• Usually paid into the bank within 24 hours or less

• Payment taken direct from bank (via card Continuous Payment Authority)

• Typical interest rates around 1300%

PAY DAY LOANS

Most lenders are members of a trade body:

• The Finance and Leasing Association (FLA)

• Consumer Finance Association (CFA)

• Consumer Credit Trade Association (CCTA)

DIFFICULTIES IN PAYING BACK

Customer charter requires members to:

• Deal sympathetically and positively &

• Freeze interest and charges if:

o The client makes repayments under an agreed/reasonable

repayment plan or

o After 60 days of non-payment

CHARGES

Initial cap of 0.8% a day in interest charges:

• E.g. £100 borrowed for 30 days at 0.8% a day = £24 in interest

• A cap of £15 on the one-off default fee

• Total cap of 100%. If a borrower defaults, the interest on the debt will

build, but they will never have to pay back more than twice the amount

they borrowed.

HOW CHARGES WORK

£100 original loan amount

£24 (£100

x 0.8% x 30

days)

£100 £15

£48 original

£24 + extra

£24 for

another 30

days

£3.60 interest on

default fee

£100 £15 £96 original

£24 interest +

extra £72 for

another 90 days

£10.80 additional 90

days of

interest on

default fee

Pay on

time

30 days

overdue

90 days

overdue

Total to pay - £221.80

Capped at £200

Total to repay - £166.60

Total to repay - £124

HOW MUCH IS OWED

• Jeff borrows £350 for 30 days. How much will he repay if paid on time?

• Jess borrowed money from his friend, Andy and paid him back instead

of paying the PDL. Now he’s 60 days late in repaying the PDL. How

much will he have to repay to clear the loan?

• If Jess doesn’t pay PDL now and leaves it another 30 days, ow much

will he pay back then?

ANSWERS ON NEXT PAGE

HOW MUCH IS OWED

ANSWERS

Repay on time

• £350 x 0.8% x 30 days = £84 interest. Total to repay = £434.00

Repay 60 days late

• £350 x 0.8% x 30 days £84) = £434.00

• + £350 x 0.8% x 60 days = £168

• + £15 default fee

• + £15 default fee x 0.8% x 60 days = £7.20

• Total to Repay = £624.20

Repay 90 days late

• £350 x 0.8% x 30 days = £84 + £350 = £434.00

• + £350 x 0.8% x 90 days = £252.00

• + £15 default fee

• + £15 default fee x 0.8% x 90 days = £10.80

• Total to repay £711.80 but you can’t pay back more than double,

so amount to repay would be limited to £700.00

CONTINUOUS PAYMENT AUTHORITY

Also known as CPA.

• Definition:

- A type of recurring payment, similar to a direct debit, where you give

permission for a company to take money from your account on a regular

basis. The CPA gives the company permission to take payments

whenever they want, and take payments for different amounts, without

consulting you beforehand.

HOW DOES IT HAPPEN?

• Client gives debit or credit cards details to company via phone, in

person or online.

• Unlikely to be any written record of authority being given.

• At renewal time, cover automatically renews unless cancelled by

client.

WHEN IS CPA USED?

Continuous Payment Authority (CPA) is favoured by many

organisations:

• Insurance companies

• Gym memberships

• Internet providers

• Pay day loan companies

PROBLEMS WITH PAYMENTS

• If full payment is declined, some firms will try to take multiple

smaller payments in order to recoup the money

• Under new rules Lenders can only make 2 unsuccessful attempts to

reclaim a payment and they will not be allowed to attempt a partial

collection

• Tend not to be any charges if lender unable to collect payment

via CPA, whereas failed direct debit incurs a charge

HOW TO CANCEL CPA

• Write to the company taking payment and ask them to stop.

• Write to the card issuer and cancel

(The bank must stop the payment immediately – the bank cannot insist

that you agree this with the company taking the payment first.)

• It is your right to cancel continuous payment authorities directly with

your card issuer.

WHAT IF PAYMENTS ARE NOT CANCELLED

• Any payments taken after you have requested CPA to be stopped, would

be treated as unauthorised transactions

• The card issuer must refund these payments to you

• Complain if this doesn’t happen, and also contact Financial Ombudsman

Service

HOW LONG DOES IT LAST?

• It lasts until all the included debts have been repaid

• If the Judge grants a Composition Order the repayments will only

need to be made for 3 years

• The Admin Order is recorded on the credit file for 6 years from the

date the Order was made

• Also added to the Register of Judgments, Orders & Fines for 6 years

from the date the Order was made