A lender that agrees a short-term loan will normally want repayments collected automatically, and the two common ways of doing it work very differently. A Direct Debit is protected by a guarantee that applies across the banking system, while a recurring card payment, also called a continuous payment authority (CPA), is not covered by that guarantee. Knowing which method a loan uses shows what protection is available if a payment goes wrong. This guide draws on the Financial Conduct Authority (FCA) and the Direct Debit scheme’s published guarantee; the cancellation detail for CPAs is covered separately in our guide to continuous payment authorities.
How each method works
The FCA explains that with a Direct Debit the customer gives a business their bank account details and permission to take money from the account, usually on an agreed schedule. A recurring card payment lets a business take payments from a debit or credit card according to what was agreed at sign-up. That can be fixed payments on fixed days, or it can be at any time and for varying amounts, but only if the customer agreed to it. The FCA lists short-term loan repayments among the common uses of recurring card payments, alongside subscriptions and memberships.
The Direct Debit Guarantee
The published Direct Debit Guarantee says it is offered by all banks and building societies that accept instructions to pay Direct Debits. Its main terms are that the organisation must normally give 10 working days’ notice of a change to the amount, date or frequency of collection; that a full and immediate refund is due from the bank or building society if an error is made by the organisation or the bank; that an undeserved refund must be repaid when asked; and that the customer can cancel at any time by contacting the bank or building society, which may ask for written confirmation, and should also notify the organisation. The scheme’s own explanation adds that the guarantee does not change the contract with the biller: a customer who is collected the wrong amount can reclaim it but still owes what they agreed to pay.
What is different with a recurring card payment
According to the FCA, recurring card payments are not covered by the Direct Debit Guarantee. Protection comes instead through the card issuer. The FCA says a customer can cancel by contacting the business, or by asking the card issuer, and that once asked the card issuer must stop the payments, even if the customer has not contacted the business. The request has to be made by the end of the business day before the next payment is due, or the payment can still be taken. The FCA adds that a card issuer cannot insist that the customer contacts the business first, though it recommends telling the business where possible.
Payments taken after cancellation
The FCA states that any further payments taken after a recurring card payment has been cancelled are considered unauthorised transactions, which the card issuer must refund immediately together with related charges. If payments continue, the customer should contact the card issuer and, if there is no refund, make a complaint. Consent must also be clear, specific and informed to be valid: if a customer did not know they were agreeing to a recurring card payment, or an existing arrangement was renewed without their consent, the FCA says the card issuer should stop the payments and return the money.
Cancelling does not cancel the debt
Both sources make the same point. The Direct Debit scheme says the guarantee does not affect the contract with the biller, and the FCA says cancelling a recurring card payment does not necessarily end the contract and the customer remains responsible for money owed. Stopping collection is therefore a way to control the account, not a way to escape a repayment obligation. A borrower who cannot afford the repayments should contact the lender promptly, since the FCA’s Handbook requires lenders to treat customers in or approaching arrears with forbearance and due consideration; see our guide to arrears and forbearance.
Practical points when signing up
Because the routes differ, it is worth checking in the loan agreement which method is used and whether the lender can vary the amount. The FCA also notes that a new payment card does not always carry recurring payments over, so the card issuer can confirm what will happen to an existing arrangement.
FAQs
Does the Direct Debit Guarantee cover a card repayment?
No. The FCA states that recurring card payments are not covered by the Direct Debit Guarantee.
Who can I ask to stop a recurring card payment?
The business taking the payment or the card issuer. Once the card issuer is asked, it must stop the payments.
How much notice must a Direct Debit change have?
The guarantee says changes to the amount, date or frequency will normally be notified 10 working days in advance, or as otherwise agreed.
Does cancelling stop me owing the loan?
No. Both the Direct Debit scheme and the FCA say the underlying contract and the money owed remain.
The bottom line
A Direct Debit carries an industry-wide guarantee of notice, immediate refund for errors and cancellation through the bank, whereas a recurring card payment sits outside that guarantee and relies on card issuer rules under which a stop request must be honoured and later payments treated as unauthorised. Whichever method a lender uses, stopping it does not remove the debt. This is general information, not financial advice.