How to stop automatic withdrawals from payday lenders.
If you are facing repeated automatic withdrawals by a payday lender from your checking or savings account, you have rights. These withdrawals can cause overdraft fees, finance charges, and financial stress. Payday lenders often set up these recurring debits that drain a checking account. You are not stuck with those withdrawals. Learn about your protections from federal law that gives you the right to revoke permission and to order your bank or credit union to block future debits / money taken from your account.
These consumer protections come from Regulation E, which implements the Electronic Fund Transfer Act. The current text of Regulation E is at https://www.consumerfinance.gov/rules-policy/regulations/1005/ and the specific stop-payment rule is at https://www.consumerfinance.gov/rules-policy/regulations/1005/10..
Steps to take to stop a transfer
No matter what you are told, consumers do in fact have rights under federal government and industry law when it comes to electronic fund transfers, or EFT. The basic protection is straightforward. When a payday lender is pulling money on a recurring basis, you can tell your bank or credit union at least three business days before the next scheduled debit that you want it stopped. You may do this by phone or in writing; many institutions will require a brief written confirmation within fourteen days, and they should tell you where to send it at the time you call.
Some people may not be comfortable in contacting their bank and/or payday lender. Maybe they are intimated or not always sure what to say or write to them. In these cases it is possible to use a on-profit credit counseling agency, as many of them offer free services to very low-income households - including in dealing with bank account withdrawals. You can look here for national and links to local credit counseling agencies.
- Be aware that online payday lenders may use newer electronic debit mechanisms (ACH debits, or debit-card network pulls) that process faster and may not have the same traceability as paper checks. Even so, the fundamental rights under Regulation E still apply to preauthorized electronic fund transfers.
Once you revoke authorization, the institution must block the next and all future debits (withdrawals) from that lender rather than waiting for the lender to act. The rule text and official commentary that explain these points are here: https://www.consumerfinance.gov/rules-policy/regulations/1005/10 and https://www.consumerfinance.gov/rules-policy/regulations/1005/Interp-10. You do not need to be exposed to repeated bounced check fees or finance charges while working out payment arrangements with the payday lender.
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. It is smart to notify both parties (your bank and payday lender) in writing on the same day. Send a short letter or email to the lender revoking authorization “effective immediately,” and keep a copy. Then give your bank the same revocation and, if required, the signed stop-payment order. In addition to stopping the payment for a single transaction, you can revoke authorization for all future withdrawals by the lender.
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.
- Some banks or credit unions may charge a stop-payment fee for instructing them to stop a preauthorized debit. This is not prohibited under federal law, but you should ask your institution if there is a fee
Some payday loans are structured as a one-time withdrawal rather than a recurring payment. You can still decide to revoke authorization if you do this before the transfer occurs. When a loan is structured as a single electronic pull on the due date, banks process it quickly and the window to stop it is narrow. Or you can look into consolidating the payday loan into something more affordable.
- You still have the right to revoke permission before the money is taken, (the same three-business-day standard applies) but you must contact both the lender and your bank immediately. For most borrowers, switching to another repayment method, such as a money order or certified check, may be safer once the automatic debit is canceled.
What to do if your notification does not work and another withdraw occurs
If a a withdraw from your bank account (debit) still goes through after you revoked authorization and gave timely notice, treat it as an error and trigger your bank’s investigation rights under Regulation E. The error-resolution section and its official interpretation explain timelines and provisional credit; start with https://www.consumerfinance.gov/rules-policy/regulations/1005/11.
If your bank refuses to honor a timely stop-payment or fails to investigate an unauthorized transfer, escalate. Even look into using a free legal aid attorney in your state. Cite Regulation E §1005.10 and §1005.11 by link in your written follow-up so the institution sees precisely what you are invoking. If that does not resolve the issue, file with the CFPB at the complaint portal (website: https://www.consumerfinance.gov/complaint/) and file a complaint with your state regulator or attorney general.
- If your bank / lender 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 about state payday loan regulators.
Finally, be prepared for variations in how a bank implements the block. Some institutions cannot technically “tag” a particular ACH originator across all channels and instead rely on a third-party service to intercept the transaction. The CFPB’s official interpretation of Regulation E allows alternative procedures so long as your account is not debited, and the obligation to honor an oral stop-payment given at least three business days in advance still applies.
Bottom line - you can stop payday lenders from taking your money
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. Both of these must be done timely and in advance as noted.
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.
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