Revoking automatic debits from your account

Automatic withdrawals from your account can be a convenient way to pay — but sometimes they take on a life of their own. The  federal government’s consumer watchdog Monday issued a reminder to companies that they must have your OK before taking automatic payments, called debits, from your account.

The U.S. Consumer Financial Protection Bureau also provided samples of letters you can to send to merchants, banks and credit unions, to stop the payments. “Consumers … have the right to stop these charges at any time,” CFPB Director Richard Cordray said in a news release.

The consumer bureau’s move comes after its review of financial companies found that some merchants aren’t giving full information to consumers — such as the amount and timing of payments — before connecting a pipeline into their accounts. The bureau also gets complaints from consumers who are struggling with runaway payments.

Automatic debits are different from auto payments that you initiate, such as through your bank’s bill payment feature. You can stop an automatic bill payment that you initiated by revising your settings in your account’s bill payment system.

Auto debits may be harder to stop. With auto debits, the merchant pulls the money from your account, often in amounts that vary from bill to bill. Monthly credit card bills, telephone or cable-TV service, utility payments and gym memberships are some of the common expenses for which consumers set up automatic debits. In addition to the convenience of paying bills automatically, the pluses include knowing you won’t miss a payment and get hit with a late fee. Some lenders may even give you a discount for setting up auto debit.

Obligations to pay remain

Stopping auto debit isn’t the same as canceling a contract for a long-term service, and ceasing an automatic payment doesn’t change any legal obligation you have to pay. It just changes the way you pay. For example, you may decide to use checks or other payment types in the future, or just need to stop a payment until there’s enough money in your account to cover it.

“It doesn’t mean you don’t owe the money; it doesn’t mean you haven’t broken the contract — that’s between you and the company,” said Lauren Saunders, associate director at the National Consumer Law Center. “But you do have the right to get their hand out of your bank account.”

Your rights concerning auto debits are set out under the Electronic Fund Transfer Act, which sets rules regarding transfers from bank accounts. For unwanted bills that land on your credit card account, a different set of rules applies, under the Fair Credit Billing Act.

Sample letters

The formal term for stopping auto debits from a deposit account is “revoking company authorization.” You should include your account number in your letter to the service provider, and follow up with a telephone call, the CFPB said. The agency’s sample letter can be used to stop just the next scheduled debit, or to end the automatic deductions permanently.

The agency also recommends that you follow up with a revocation letter to the bank or credit union informing them of the move.

A “stop payment order” to the bank or credit union can block auto debits from being taken from your account without the merchant’s involvement. However, most banks charge a fee for stopped payments.

If you notice unauthorized debits from a company you’re not familiar with you should tell the bank with a notice of unauthorized transfer.

It’s important to monitor accounts and alert the bank immediately if there’s a debit that you didn’t authorize, the CFPB said. The law protects you from loss of the funds, but allows the bank time to investigate the circumstances of the transfer before crediting your account.

 

You can stop some auto debit headaches before they happen by being careful about granting access to your account, the CFPB said. For example, be on guard if a company pressures you to set up auto debit. A lender cannot require you to repay a loan by automatic debit as a condition of granting the loan, except for overdraft lines of credit.

See related:  Your rights under the Fair Credit Billing Act, Withholding a card payment: It’s your right, but take care