Your Rights on Electronic Payment of Loans

Your Rights on Electronic Payment of Payday Loans

Consumers have the right under either federal law or industry rules to stop a payday lender from electronically taking money out of a bank account. This does not settle the debt but these rights help consumers stop the drain of repeated finance charges or bounced check fees while working out payment arrangements.

Loans with built-in renewals: If your online payday loan has built-in loan renewals, the lender cannot require you to pay electronically under the Electronic Fund Transfer Act (EFTA at 15 U.S.C. 1693a(9)). You have the right both to stop payment on a specific withdrawal and to revoke authorization for all future withdrawals by a lender. In both cases, the bank can impose its stop payment fee.

For a loan with built-in renewals, to stop an individual withdrawal, you must notify your bank orally or in writing at least three business days before the transfer is scheduled. The bank may ask you to also give them a written confirmation of the stop payment order within fourteen days of the oral notification. If you fail to provide the written confirmation, the stop payment expires at the end of fourteen days.

In addition, if you notify the bank that your debit authorization is no longer valid, the bank must block the next withdrawal as well as all future payments for the specific debit sent by the online lender.

To stop future electronic withdrawals, write a letter to the payday lender that it is no longer authorized to debit your account. Make a copy of your letter to give to your bank.

Your bank may ask you to confirm that you have notified your lender that you no longer authorize the payments to be automatically debited from your account. Write a letter to your bank to give written notification within 14 days of your oral notice to the bank. Otherwise the bank may honor subsequent debits to the account. Check your bank statements and report any unauthorized withdrawals from your account to your bank.

One-time payment loans: While federal law does not give consumers the right to stop payment on a one-time debit transaction, the lender has agreed to comply with rules issued by a private organization that provide this right.

The online payday lender is required by industry rules to disclose that the consumer may revoke authorization to debit a bank account. Notify your lender and your bank at least three days before the withdrawal is to take place (the due date on the loan.) The lender must tell you how to revoke authorization. Read the fine print of the loan agreement for instructions on where and how to stop electronic access to your account.

Industry rules require you to contact the lender that you are revoking your authorization and to then notify your bank. Contacting the online lender may be hard to do if you don't have a copy of the loan documents or if you borrowed from a lender that fails to post contact information. Internet payday loan contracts typically require you to give three days' advance notice before the payment is due if you want to revoke electronic authorization.

Rights vs. Reality: While you have the right to revoke authorization for the online payday lender to electronically withdraw money from your bank account to repay a loan, it is not always easy to exercise that right successfully. Some banks' stop payment systems are set up only to identify a check number and a specific dollar amount, not the name of the payee. Some Internet payday loan contracts state that loans may be broken into several withdrawals, so a bank may not be able to identify the transaction to be stopped. If you have other preauthorized debits for the same amount, the bank may mistakenly block a debit you intended to make.