Your Rights - Electronic Payment of Payday Loans
Good News! Federal Law and the loan industry at large gives borrowers the right to stop lenders from continuing electronic payments against their wishes.
This does NOT mean you are absolved from paying off your payday loan (principal and accrued interest). The main purpose of this legislation is to halt the repeated debiting of your account - against your wishes.
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Built In Renewals - Check Your Agreement!
Many payday loans have built in renewals - meaning loan providers INITIALLY may have the right to continually debit your bank account in effort to close out your debt. You are not required to conform to this process according to the Electronic Fund Transfer Act (EFTA at 15 U.S.C. 1693a(9)).
3 Day Notification To Stop Transfer
In order to stop a loan provider from debiting your account that is set up with a built-in renewal, you must contact your bank verbally or in writing 3 days prior to the transfer.
You must also notify your payday lender in writing that you are no longer authorizing the debit to your account. Send a copy ofthe notice to your bank, as well. This is essential if you wish to block continued debits in the future.
This rule DOES NOT apply to one-time debit arrangements to your account. However, your lender does have to comply with the rules of the private organizations that give you that right.
The online payday lender MUST disclose that consumers have the above rights ( borrower right to terminate debiting to their account)
Rights VS Reality
Rights vs. Reality: While you do have the rights mentioned above, you might find that exercising these rights is difficult. Banks often set up their stop payment systems so they can only identify the dollar amount and the check number, but not the name of the person cashing the check. Also, some contracts on online payday loans allow the loan to be broken up into several separate debits, so the bank may not be able to locate the transaction that you want to have stopped. Also, if you have already authorized other withdrawals in the same dollar amount, the bank may stop the wrong one.