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What is a continuous payment authority (CPA)?

If you’ve ever served UK-based customers, you might see the term ‘continuous payment authority’ used in relation to automatic billing. Here’s a rundown of what this means and how it relates to credit card payments within the USA.

What is a continuous payment authority?

Continuous payment authority is a term used within the UK to describe a system of recurring payments. It’s often used to pay for things like payday loans, magazine subscriptions, and month-to-month services like gym memberships.

To authorize the continuous payment authority, the customer gives their credit or debit card details to a company. These details are stored to use at a later, usually recurring, date.

How to stop recurring credit card payments

The customer is free to cancel these payments at any time by contacting the company or their bank. Problems can sometimes occur when the creditor continues to use these card details for future payments without permission. In this case, the payments are considered unauthorized, and the consumer would be owed a continuous payment authority refund.

One thing to note is that within the UK, the deadline to stop a payment is on the working day before the payment is due by the close of business. If you try to cancel the payment the same day, no continuous payment authority refund will be issued. 

Protections for credit card customers

Within the USA, there are clear consumer protections outlined by the Federal Trade Commission (FTC) if you feel you’re owed a refund on recurring credit card transactions. To qualify for a refund, customers are required to:

  1. Dispute billing errors

  2. Put these billing errors in writing and send them to the creditor or company

  3. Mail out the letter within 60 days of the bill with the error

  4. Receive written confirmation as acknowledgement of these errors

  5. Resolve the dispute within two billing cycles

While the error is under investigation, consumers don’t need to pay the disputed amount until a decision has been reached.

What are recurring credit card payments used for?

The best way to use a credit card if you want to build a good credit rating is to make regular, small purchases and pay them off quickly. To this end, recurring payments are a good option from the customer’s end. You probably already pay recurring bills for your streaming internet services, rent or mortgage payments, and utilities, for example.

In many cases, these types of bills are paid with ACH processing, which transfers money from bank to bank. But paying with debit or credit card allows for faster transaction speeds and instant approval. Businesses benefit from these types of credit card uses for transactions that need immediate clearance, particularly in e-commerce. Customers also benefit from gaining valuable reward points.

How to set up recurring card payments

If you like the idea of a similar system to the continuous payment authority, it’s easy to set this up for your customers.

  • You can sign up for a credit card merchant account or use a payment gateway service that supports the recurring billing model.

  • Give your customers the recurring billing option on your website.

  • Record written authorization from your customers for these types of recurring credit card uses.

  • Store credit or debit card details and start processing payments using the payment gateway.

Recurring card payments vs. ACH debit payments

US-based businesses have more than one option when it comes to recurring payments. One is to use credit card payments like the UK’s continuous payment authority model. The other option is to use the ACH debit system for bank-to-bank transfers.

The benefits of recurring payments using a credit card include speed. You’ll usually receive funds from consumers within 24 hours at the most. Furthermore, it puts you in control of payments. You can choose a starting date, payment amount, and regular date for each payment. However, the downside is that processing fees are higher with this type of system. There’s also a higher chance of payment failure, if customers reach their spending limits or haven’t replaced an expired credit card.

ACH debit payments also put the business in control of payment dates and amounts, but they can take longer for processing. You might need to wait several working days for the funds to clear into your account. Yet fees are lower for this option, and there are more protections in place since you’re going through the banking system.

Overall, it might be best to give your customers the option of choosing which type of payment system works best for them. Many prefer to pay with a credit card, both for flexibility and reward points.

We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.

GoCardless is used by over 55,000 businesses around the world. Learn more about how you can improve payment processing at your business today.

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