How to Stop Payday Loans From Debiting My Account

If a payday loan lender continues to debit your bank account, potentially causing overdrafts or financial strain, you have specific rights concerning electronic fund transfers. Understanding these protections and taking action with both your bank and the lender can help regain control of your finances.

Understanding Your Right to Revoke Authorization

Consumers have the right to stop preauthorized electronic fund transfers from their bank accounts. This protection falls under federal law, specifically the Electronic Fund Transfer Act (EFTA) and Regulation E. These laws establish that you can revoke authorization for an Automated Clearing House (ACH) debit, the system payday lenders use to withdraw payments. An ACH authorization grants a lender permission to electronically pull funds from your account on scheduled dates.

This right applies even if the original loan agreement granted ongoing authorization for debits. Lenders cannot condition a payday loan on obtaining authorization for preauthorized electronic fund transfers. To exercise this right effectively, you will need to gather specific information: the debit amount, scheduled date, the company’s full name, and your bank account number.

Steps to Take With Your Bank

To stop a payday loan debit, take direct action with your bank. Provide oral notification to your financial institution at least three business days before the scheduled transfer. This initial notice is sufficient to stop the upcoming payment, but your bank may require written confirmation. If written confirmation is requested, you typically have 14 days from your oral notice to provide it; otherwise, the oral stop-payment order may cease to be binding.

For written notification, send a letter clearly stating you are revoking authorization for the company to take automatic payments from your account. Include all relevant details such as the company’s name, your account number, and the specific amount and date of the problematic debit. Send this letter via certified mail with a return receipt requested.

Once properly notified, your bank is required to stop the specific payment and, if you revoke authorization, block all future payments from that designated payee. If your bank fails to stop a properly authorized payment after receiving timely notification, they may be liable for any losses or damages you incur. After your request, it is important to confirm with your bank that the action has been taken and to inquire about any associated fees, which can range from $16 to $30.

Steps to Take With the Lender

Even after notifying your bank, communicate directly with the payday loan lender. Notify the lender in writing that you are revoking authorization for them to take automatic payments from your account. This formal notification should explicitly state you are withdrawing consent for all future electronic debits.

Your letter to the lender should include your name, address, account number with the lender, and the effective date of the revocation. Send this notice via certified mail with a return receipt requested. While federal law gives you the right to stop automatic payments, revoking authorization does not eliminate the underlying debt. If the lender attempts to debit your account again after receiving your notice, this could constitute an unauthorized transaction, which you should promptly report to your bank.

Protecting Your Bank Account Moving Forward

After taking steps to stop unwanted debits, consistently monitoring your bank statements is important for ongoing financial security. Regularly review your transaction history for any unauthorized or reattempted debits from the payday loan lender. If you identify any payments that were not authorized or that occurred after you revoked authorization, notify your bank immediately. Federal law provides you the right to dispute and potentially recover funds from unauthorized transfers if reported within a reasonable timeframe, typically within 60 days of the statement showing the transaction.

If repeated unauthorized debits persist or if you feel your account security is compromised, consider options for enhanced protection. One measure is to change your bank account number by closing the existing account and opening a new one. While you cannot simply change an account number, opening a new account effectively assigns you a new one. Before doing so, ensure all legitimate direct deposits and automatic payments are rerouted to the new account to avoid disruptions.

It is important to understand that stopping debits does not eliminate your obligation to repay the loan; the debt remains, and the lender may pursue other collection methods. Lenders may report unpaid loans to credit bureaus or refer them to collection agencies, which can affect your credit score.