Many US lenders use automatic withdrawals to collect payments from borrowers. It is possible to stop these automatic payments in a couple of simple steps.
Key Points:
- Through telling your bank and lender to halt them, you will be able to stop automatic payments.
- US payday lenders use a system called ACH Authorization to collect repayments from borrowers’ accounts directly.
- This means that you don’t need to remember your repayment date every month; the system does the thinking for you!
- Over 12 million Americans use payday loans every year, with the US housing over 23,000 lenders.
How Can Lenders Legally Take Automatic Payments?
In your contract, many borrowers grant permissions to lenders to allow them to automatically withdraw funding from their checking account. While this is within a contract, it is possible to take this power away from them. The way to do this is to write to your lender and to your bank (or credit union) so that your request is officially submitted.
At that point, automatic requests will be stopped. You may choose to do this because you are rushing to get some more money into your account, or because you suspect that there is something not quite right with the withdrawals. Maybe they are too frequent, maybe they are too large. Either way, if you are suspicious – stop the payments!
Automatic payment can be stopped with a quick letter and call.
Why Do Lenders Take Automatic Payments?
Automatic payments are there for convenience- both theirs and yours. With 12 million borrowers spread across 23,000 lenders in the US, there is plenty to manage. Automatic payments takes away some of the stress.
Payments are made through a system called ACH Authorization which takes payments on a regular basis from your account.
When you take out a loan, most lenders will ask you to select a date (typically your payday) to make payments to them. This will occur on the same date each month until you have paid off your loan.
To prevent you having to remember to make your payments regularly and fully, they use a system that remembers for you. Most lenders will remind you that money is being removed so that you don’t get a shock.
This process bears a likeness to a direct debit and is a time-saver as it means you don’t need to remember to make your payments. This also prevents you from forgetting and incurring late fees or unnecessary damage to your credit record.
Why Would I Stop Automatic Payments?
If you are suspicious. You may notice that your lender is overcharging you, or taking money out too often. If this happens, then you should stop automatic payments immediately. You should also check that your lender is regulated by checking their status on the OLA website or SEC register. You can also look them up on the Better Business Bureau to see how strong their past operations have been.
Otherwise, you may have other debts that are really pressing. You may want to stop payments while you get your hands on a further loan, a cash advance, or some help from a loved one.
If you miss a repayment you will incur late fees and could have to pay increased interest.
Automatic payments will be made on the same day each month, typically.
How To Stop Lenders Withdrawing From Your Account
- Send a letter to your bank or credit union. Within this piece, explicitly state that you want payments from your account to stop, and outline your bank details.
- Send a letter to your lender. This legally requires them to halt their withdrawals. Let them know that this applies to any and all future debits, unless you inform them otherwise.
- Clear your account. This means that there is no money for them to take, because you have emptied your account. This should be a last resort and should only be done if withdrawals are excessive, too frequent, or you question the legitimacy of your lender.
- Ask your bank to ‘stop payment order on a payday loan.’ This blocks any upcoming withdrawals, as long as you request this over 72 hours ahead of the withdrawal. You will need to send another letter, or contact your bank, to do this.
- Settle your debts. If you settle your debts, your lender should stop withdrawing.
