You can stop ACH authorization (automatic withdrawals from your bank) on payday loans. Here's how.
If you have applied for and received a payday loan online, you likely agreed to have the payments automatically withdrawn from your bank account. You have the right to stop the automatic withdrawal before it occurs. You can do so by:
- notifying the payday lender to stop taking the withdrawals, or
- notifying your bank to stop payment on the withdrawal.
As a last resort, you may also close your bank account in order to avoid the automatic withdrawals. (Learn how payday loans work and why they are usually a bad idea in Reasons to Avoid Payday Loans .)
Notify the Payday Lender to Stop Taking Payments
You can stop the automatic payments be telling the payday lender to do so. Here’s how.
Verify the Instructions in the ACH Authorization
The first step in stopping an automatic withdrawal is to locate the portion of your agreement that allows the lender to withdraw the payments automatically. This is typically located in the promissory note, and may be captioned “Automated Clearing House Credit and Debit Authorization Agreement” (ACH Authorization).
This section contains your agreement to pay the loan by automatic withdrawal, and must also describe how you can stop the payments.
All authorizations for automatic withdrawal must describe how to stop the payments. If your ACH Authorization does not specify how automatic withdrawals can be stopped, it is invalid. You may be entitled to a refund of any funds already paid under an invalid agreement. Let your bank know that the lender’s agreement was invalid, and that you want it to recover any funds already paid.
Follow the Instructions in the ACH Authorization
You must follow the instructions contained in the ACH Authorization in order to stop the automatic withdrawals. Typically, the ACH Authorization will require that you notify the lender by mail within three days of the scheduled withdrawal. You should send the letter to the lender’s address by certified or express mail, and keep a copy of your receipt with the tracking number so that you have evidence that your letter was delivered.
Your letter should include the date, your name, your address, and your account number with the lender. If you can, include a copy of the ACH Authorization. Your letter may say something like this:
VIA CERTIFIED MAIL (TRACKING NUMBER)
Payday Lender Name
Payday Lender Street Address
Payday Lender City, Payday Lender State Zip
RE: Account No. XXXXXXXXXX/Revocation of ACH Credit and Debit Authorization
Effective immediately, I hereby revoke any and all prior ACH Credit and Debit Authorizations related to the above referenced account. A copy of the ACH Authorization is enclosed.
Please confirm receipt of this revocation, and your intention to honor it, no later than (specify a date before the date of the scheduled withdrawal). Confirmation may be made via ___________
(tell the creditor how to contact you. Email is best because it is difficult for the creditor to harass you by email).
The earlier you send this letter, the better.
Provide a Copy of the Letter to Your Bank
You should provide your bank with a copy of the letter. Once you notify your bank that you have revoked your authorization of the automatic withdrawal, it must block all future payments, as long as you provide the notice at least three business days before the scheduled payment. This is not the same thing as asking your bank to stop payment (described below), and the bank should not charge you a fee for this.
Notify Your Bank to Stop Payment on the Withdrawal
Your bank is required to stop payment on an automatic withdrawal if you give it three business days’ notice. Notifying your bank by phone within the three business day period is sufficient to stop the transfer, but your bank may also require that you put your request in writing within 14 days. Many banks have online forms that you can complete to stop the withdrawals. Most banks will charge you a fee for stopping payment.
It is important that you provide your bank with accurate information about the date and amount of the transfer. If possible, you should provide the bank with a copy of the ACH Authorization.
If at any point you are unsure if what you’ve done is sufficient to stop the transfer, consult with your bank.
Close Your Bank Account
You should close your bank account to stop the transfers only as a last resort. You might have to do this if:
- your payday lender does not respond to your request to stop the withdrawals
- you do not have time to notify your bank to stop the withdrawal, or
- you can’t afford the stop payment fee.
You should consult with your bank as to whether this is necessary.
File a Complaint With the Consumer Financial Protection Bureau
File a complaint with the Consumer Financial Protection Bureau (CFPB) if you experience any of the following:
- the ACH Authorization does not specify how to stop automatic withdrawals
- the payday lender refuses to stop withdrawals after you notify it to do so
- the bank allows a withdrawal after you notify it that you revoked authorization for the withdrawal, or
- the bank did not stop payment after you requested it to do so.
The CFPB is a federal agency that enforces regulations applicable to payday lenders, banks, and other financial institutions. The CFPB will work with your lender or bank to resolve your complaint. You may submit a complaint at http://www.consumerfinance.gov/complaint/
Remember that stopping automatic withdrawal of your payment doesn’t mean you do not have to pay the loan. You should try to negotiate other payment arrangements with your lender to avoid your account going to a debt collector.