You might have noticed online promotions for easy cash loans at some point of time. These loans are commonly used by individuals with low income. Quick loans or should I say “payday loans” or “pdls” are treated as a solution to your urgent cash crisis.
Payday loans are not legal in the entire country. There are 12 states in the country where payday loans are completely banned. Apart from that, few other states also have some strict criteria on payday lending. Only 6 states don’t have limits on payday loan fees or interest. Still, approximately 12 million Americans borrow from payday loan lenders each year, and most of them are illegal pdl lenders.
If you are one of those guys who borrowed from an online illegal pdl lender, you might have also agreed to have the payments automatically withdrawn from your bank account. This process is popularly known as Automatic Clearing House or ACH.
As a consumer, you can stop the automatic withdrawal or ACH at any point in time and stop the illegal pdl lender from getting your hard-earned money.
In this article, we will shed light on that part where you’ll find the answers and try to understand in details how to stop an ACH payment .
But first, you might have to understand more about ACH and its pitfalls before discussing how to stop automatic payments on a payday loan.
# What does ACH stand for?
Practically, ACH stands for Automated Clearing House, which denotes a network that operates electronic payment system and automated money transfer process. ACH is one of the fastest and common ways to transfer your money between different banks without using checks, cash, wire transfers, or credit card networks.
# What can go wrong with ACH payday loan payments?
You have to give authorization to your payday loan lender so that they can take out funds from your account. You need to give out your bank account number and routing number along with a signed agreement to the payday loan lender. The process might be done over the phone, online, or paper form.
If you choose automatic payments on a payday loan, the pdl lender will pull funds from your account at the due date through the ACH payment system.
The process has 2 benefits.
1. You don’t have to worry about late payments anymore if you forget the payment date.
2. It saves time and eases up your payment process.
It is wise to opt for ACH debit process for your important debts. But there are a few drawbacks that might force you to think about stopping direct account withdrawal on payday loans:
- Personal details – You are revealing your personal financial detail such as your bank account number and routing number. If those details fall into wrong hands, your account security can be compromised.
- Overpaying debts – Your payday lender can make you pay more than you owe. It might be an error, but a big error like this can possibly make your account dry. Your savings will be zero, and it can make you default on other debt payments.
- Overdraft balance – You need to remember how much you have in your account. Sometimes you might overdraw your account while making your debt payments. If you carry too much overdraft balance, it may cause you big interest charges.
- Wrong withdrawal – Your lender might keep withdrawing money even if you don’t have any unpaid payday loan debt.
So, now you can see that in the name of convenience, you are actually putting your finances in a grave danger. To get rid of that problem, you have the authority to initiate a payday loan ACH revocation.
# How to stop a payday loan ACH
Here are the steps that you can follow and stop automatic payments on a payday loan:
1. Ask your payday lender to stop a direct withdrawal from the bank account
You can stop the ACH payment by following this process:
a. Check the instructions on the ACH authorization
You should check the part of the agreement where you have given permission to withdraw automatic payments. Generally, you can find the part in the promissory note. You have to look for the “Automated Clearing House Credit and Debit Authorization Agreement”.
All authorizations should mention how to stop a payday loan ACH. If your ACH Authorization agreement does not have the method written, it will be invalid. You’ll get a refund of any funds already transferred under that invalid agreement. Inform your bank about this, and ask them to proceed with an ACH reversal request.
b. Send a payday loan ACH revocation letter to your lender
As per the ACH Authorization, you should mail a payday loan ACH revocation letter to the payday lender within 3 days of the scheduled withdrawal. You should use a certified or express mail to send the letter. Make sure you retain a copy of your receipt with the tracking number as a proof of delivery.
Your payday loan ACH revocation letter must include your name, current address, and your account number. If possible, you can also include a copy of the ACH Authorization along with the letter.
Check out a sample payday loan ACH revocation letter that you may send to the lender:
City, State, Zip:
TRACKING NUMBER of the certified mail
Payday Lenders’ Address:
Payday Lenders’ City, State Zip:
RE: Account No. XXXXXXXXXX/Revocation of ACH Credit and Debit Authorization
With an immediate effect, I hereby revoke all my ACH Credit and Debit Authorizations related to the above-mentioned account number. A copy of the ACH Authorization is also attached for reference.
Please confirm the revocation with receipt within… (Mention a date before the date of the scheduled withdrawal). You can make the confirmation via Email.
Send this mail as soon as possible and get the job done.
c. Send a copy of your ACH revocation letter to your bank and credit union
You should send the copy of your ACH revocation letter to your bank and credit union. Once informed, the bank should block all automatic withdrawals on payday loans. You must inform the bank at least 3 business days before the scheduled payment.
2. Ask your bank to stop ACH on the payday loan
You should provide the “Stop payment order”, 3 business days before, over phone, to stop the ACH transfer. Sometimes, your bank might require a written request within 14 days. You can also stop automatic withdrawals by submitting a request through online forms provided by credit unions and banks. Most of them may charge a fee for that service.
If possible, you should provide a copy of your ACH Authorization along with the revocation letter.
Check out the sample “Stop payment order” letter:
RE: Stop Payment Order
To Whom It May Concern:
I am sending this stop payment order and request you to stop making payments from my bank account [xxxx-xxxx] to [payday lender]. My account number is [xxxx-xxxx].
I wish to stop:
# all future automatic payments to this lender;
#a series of payments: [Specify payment dates, months or specific payments to be stopped].
I expect the next withdrawal will be:
Approx amount of $_______
On or near the date of _______
3. Close bank account to avoid payment
Closing bank account to avoid payment should be your last option if:
- Your payday lender does not respond further to your mail.
- You do not have sufficient time to inform your bank to stop the ACH.
- You can’t pay the stop payment fee.
But before making any move, consult with the bank as soon as possible.
4. Track your accounts regularly
Ask your bank or credit union to find any payments that you didn’t authorize after the ACH revocation. As per law, you have the rights to dispute and get your money back for any unauthorized withdrawals.
5. File a complaint with the CFPB
You have the right to file a complaint with the Consumer Financial Protection Bureau (CFPB) if:
- the ACH Authorization is invalid
- the bank authorizes a payment after you revoked ACH for the withdrawals.
- the bank did not block payments as per your stop payment letter.
- the payday lender constantly send emails to the bank asking for payment.
The CFPB will work on this matter and resolve your complaint regarding the payday loan ACH revocation.
Don’t forget that stopping automatic payments on your payday loan does not reduce your debts. You should concentrate on negotiating with your lenders and sort out a repayment plan. Of course, this arrangement should work only for legal lenders. For illegal lenders, try to pay off the principal amount fully and do not pay more.