Many payday lenders and banks make it very difficult to stop the automatic withdrawals of funds from your savings or checking account. Consumers are being hit with overdraft and other fees by their banks. In addition, payday lenders can be unresponsive when it comes to stopping the transfer and they may use somewhat questionable, or maybe even illegal, practices. However you do have rights when it comes to electronic payments.
No matter what you are told, consumers do in fact have rights under state, federal government and industry law when it comes to electronic fund transfers, or EFT. There are protections in place for all types of financial transactions and your personal bank account. Borrowers do have rights when it comes to stopping the transfer of money from their account. They do not need to be exposed to repeated bounced check fees or finance charges while working out payment arrangements with the payday lender.
If you have taken a loan with automatic renewals, which is very common, then the lender cannot require you to pay them electronically for an indefinite period. According to the Electronic Fund Transfer Act, individuals are provided the right to stop payment on a withdrawal. In addition to stopping the payment for a single transaction, people can revoke authorization for all future withdrawals by the lender. However even if you take these steps you need to be aware that your bank may still be able to impose a stop payment fee on your account.
There are conditions that need to be followed per the Electronic Transfer Act. If your payday loan will automatically renew then you will need notify your bank at least 3 days in advance of the transaction due date. You need to tell them that you do not authorize the transfer of those upcoming payments or transactions. While you can call them on the phone and do this verbally, it is generally recommended to notify them in writing so that you have full documentation.
After this initial notification to the bank (whether orally or in writing) your financial institution still may ask you to formalize the process. They may ask customers to give them a written confirmation of the stop payment order or denial of transfer within fourteen days of the initial notification. Note that you need to do this if it is requested; as if you do not provide the written confirmation to them then the stop payment request may in fact “expire” at 14 days.
Once you notify your bank that you wish to end the transfers and that your debit authorization is no longer valid, then your bank is required to block the next withdrawal as well as all future payments that would normally be made by the payday or online lender. This is one of the key reasons to ensure you put everything in writing as you want documentation that shows the lender can’t continue to make withdrawals. Always keep a copy of this for your records.
In addition, in order to continue to formalize the process and to cease future electronic withdrawals from your account, you will need to write a letter (or send a formal email) to the payday lender. The letter needs to be clear and state that they are no longer authorized to debit your bank account and make sure you put a date in the letter that says effective immediately. Then you should also make a copy of this letter and give to your bank. They need to be notified as well. Or you can forward the email to the bank if that is the form of communication that you used.
Be aware that your financial institution may ask you for further proof of the steps that you have taken. For example, they may ask a customer to confirm that they have notified their payday that they are no longer authorized to withdrawal funds from your account. This is why you want to ensure you forward all written communication to your bank, as indicated above. You may even decide to write a separate letter to your bank to give them written notification within 14 days of your verbal notice to them. If you do not get them involved in the communication, your bank may be able to honor subsequent debits to your account and you may be responsible for any future fees or transactions.
After taking these steps, if the bank still allows the transaction to go through and you notify them of this then they have just ten days to investigate your claim. After this is complete they have one additional day to put the money back into your account. Even if your bank can’t get the money back from the payday lender, it doesn’t matter and they still need to reimburse you. If this doesn’t occur then you can even sue them for the original amount as well as any overdraft fees that they may have charged you. The bank may even need to pay you a fee of up to $1000 as well as reimburse you for any lawyer costs, if in fact you hired one.
The rules and regulation for a one-time payment loan are much different. Basically federal government law and the Electronic Fund Transfer Act do not give borrowers the right or ability to stop payment on a one-time debit transaction. However you can still decide to revoke authorization if you do this before the transfer occurs. Your window of opportunity is very small though. You will need to notify both your payday lender and your bank at least three days before the withdrawal takes place, which is usually the equivalent of the date of the loan. Also read the details of any agreements you have in place with the lender as this type of one-time transaction may have other conditions on it.
In general, and to summarize, the Electronic Funds Transfer Act gives people important rights to protect your bank account, but you need to use them. Government regulations and industry rules require borrowers to first contact the lender that you are revoking the transfer of funds from your account. You will also need to notify your bank of this as well and tell them that you are canceling any current and future transactions. You will need to do this at least three days' in advance in order to provide adequate notice before the payment is scheduled if you want to stop the electronic authorization. Always keep a copy of all communication with all parties involved, and be sure to keep a copy of the loan documents as well. Be sure to continually check your bank statements and online activity. Immediately report any unauthorized or questionable withdrawals from your account to your bank.
If your bank does not take action, most states have agencies that serve as regulators and oversee the payday industry as well as any other company that is involved in the process. They will protect consumers and ensure that all laws and regulations are followed by banks and other lenders. Find more information on state payday loan regulators.
There can be some challenges to this entire process though. While as indicated consumers do have the right to stop transfers from online payday lenders, it is not always that easy to do this. For a paper transaction, banks are able to verify your signature on a check if need be. However electronic transfers just go through their system in rapid fashion, so this can make things more complicated.
For example, when someone is electronically withdrawing money from your bank account, certain banks' stop payment systems are not set up to easily accommodate your request. They will be only able to identify a specific dollar amount or a check number and they not be able to stop transfers or payments by the name of the payee. Another common challenge is that some internet payday loan contracts may try to break your loan down into several different withdrawals that occur over a period of time. When this is done your bank may not be able to identify the exact transaction to be stopped. Also, if you have other preauthorized debits on your account for the same dollar amount then the bank may in fact mistakenly block a valid debit. However, this should not discourage you from trying the various steps indicated above.
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