Call us: 0800 347 257

To honour or not to honour?

Credit card upgrade

Megan had been a customer of her credit card company, Credita Limited, for several years. She decided to upgrade the type of credit card she had with Credita.


Two months after the old credit card was cancelled, Megan received a bill from Credita for payments it had authorised on her old credit card. The payments were for a subscription to an anti-virus software company and for insurance premiums.


Megan called Credita to ask how and why this had happened, because the old card had been cancelled. Megan said she did not get a clear answer from Credita.


Megan did not pay the bill. As a result, her new credit card was suspended.


Megan asked Credita to point out the section in the credit card terms and conditions which allowed Credita to honour payments on cards which were cancelled. Megan said she asked for this information several times from Credita, but did not receive it.


Megan told Credita she wanted to make a complaint, and Credita referred her to the ‘Credit Ombudsman’ which is a dispute resolution scheme in Australia.


Credita also referred Megan’s outstanding bill to a debt recovery company.


The complaint

Megan did not agree that Credita had the right to honour payments after her old card was cancelled. She also thought she should receive a part refund of Credita’s annual fee attached to her new credit card, because she had not been able to use it.


Megan also said she had been unable to utilise a free domestic flight valued at $300 which was one of the benefits of upgrading her credit card, and wanted to be compensated for this.


Lastly, Megan was dissatisfied with the service she had received from Credita, particularly when it referred her to an Australian dispute resolution scheme.



We reviewed the terms and conditions. There was a clause which said that if a card is cancelled, the cardholder has the responsibility to cancel any authorities given to third parties to debit the card.


It followed that, in our view, Credita was entitled to honour the software company and insurance premium payments. In the circumstances, we thought that Credita was not required to compensate Megan for the flight or refund part of her annual fee.


By this time the debt collectors were seeking an amount of $217 from Megan. Credita acknowledged there had been some shortcomings in its service when it did not point out the specific section of its terms and conditions permitting it to honour payments after cards had been cancelled. Credita had also incorrectly referred Megan to an Australian dispute resolution scheme.


Credita agreed to write off the $217 it was seeking through the debt collectors. Megan accepted this and withdrew her complaint.


Lesson to be learned

It is easy to forget you have given third party companies the authority to debit your credit card for recurring payments. This is especially when payments are only made annually.


Your credit card company may have a clause in its terms and conditions that it will honour these payments, even if your card is cancelled. The theory is that you will avoid any embarrassment or adverse consequences of a payment dishonouring.


If in doubt, review your account and contact any companies you have made payments to in the past. They should be able to inform you whether you gave any recurring debit authorities when you made your purchase. You should then be able to cancel the authorities so that no further unexpected debits are made to your account.