When it comes to having money taken out of your account without your knowledge or permission, you are protected.

Bills and other regular payments can be paid from a bank or credit union account via automatic payments that customers set up with merchants and service providers. It could be used for anything from rent or mortgage payments to credit card payments to monthly child care or gym membership dues or car payments. Having bills automatically deducted from a bank account can be an easy way to avoid late fees and avoid missing payments. Borrowers whose payments are automatically deducted from their accounts may be eligible for a lower interest rate. However, customers have reported having trouble canceling recurring payments after giving a business their bank account information.

Knowing how automatic debits function and what to watch out for is important before providing someone with your bank account details and authorizing them to conduct periodic withdrawals from your account. how to cancel the service and stop future payments if you no longer wish to use that payment method

What is the procedure for setting up a recurring debit payment?

You can decide how to handle your financial obligations. There are a few different ways you can pay, including by check and online. You can use the online or mobile bill payment services that most banks offer to arrange and send payments to your creditors. A second form of electronic payment is to authorize a business, such as a retailer or a lender, to automatically deduct payments from a bank account on a regular basis. These will be referred to as "direct debits." Let's examine this remaining method of making online transactions more thoroughly.

Direct debits can be set up with a variety of businesses, including student loan or mortgage servicers, as well as fitness centers, by providing the business with your bank account or debit card details and authorizing them to automatically:

  • take money out of your account digitally;
  • continuously, at regular intervals, such as monthly

For recurring bills like utilities that fluctuate from month to month, you can set up automatic debit payments to pay the same amount each time, or you can allow payments to fluctuate in amount within a specified range. Any time the amount of a scheduled payment will deviate from the approved amount or range, or the amount of the most recent payment, the company is required to give you notice at least 10 days in advance.

When compared to traditional bill payment methods, how are automatic debit payments unique?

When compared to the bank's recurring bill-pay feature, automatic debit payments operate differently. By authorizing automatic payments to be made through your bank, you can ensure that your bills are always paid on time. When you sign up for automatic debit, you authorize the company to deduct payments directly from your bank account.

Use caution before giving out your bank account details or authorizing someone to make withdrawals from your account.

Bills and other recurring expenses can be easier to manage when paid automatically. It's important to exercise caution before authorizing a company to debit funds directly from your bank account.

Don't authorize automatic withdrawals without first considering the following.

  • Inspect the business and make sure it's legit Do your research to ensure the company is legitimate and trustworthy before authorizing automatic withdrawals from your bank account. You may want to use a different method of payment until you can be sure you're satisfied with the business or service. Never give a business your banking details if you have any doubts about their legitimacy.
  • Informed consent Except in the case of an overdraft line of credit, a lender cannot insist that you pay back a loan using an automatic debit from your checking account. You should be wary of any business that insists you pay via preauthorized withdrawal.
  • Watch out for insufficient funds (NSF) and overdraft fees. Bills can be paid on time every month with automatic payments and you won't have to worry about late fees However, overdraft or NSF fees may be incurred if you fail to monitor your account balance and there is insufficient funds when an automatic (or other) payment is due. If your account balance is low, you may incur penalties from both the bank and the business. These costs can add up quickly. Make sure you have enough money in your checking account or other payment method to cover any automatic payments that are coming out of your account at the time they are due.
  • Take a look at the auto-pay clause in your agreement. A copy of the terms of your payment authorization must be provided to you by the company. In signing the payment authorization, you are giving the company permission to take money out of your bank account to pay you. Your permission's stipulations should be written down in plain English. The authorization copy should be read carefully and kept for future reference. Verify the amount and frequency of the withdrawals from your account. Keep an eye on your bank statements to confirm that the incoming and outgoing transfers match what you expected.

You are safeguarded, and you have the option to cancel recurring payments.

Automatic payments that occur repeatedly are shielded by federal law. Even if you've given a company permission to take automatic payments from your account in the past, you can revoke that permission at any time. It's possible, for instance, that you might opt out of further services or membership, or change your method of payment.

If you no longer wish to have funds drawn from your account automatically:

  1. Make some phone calls and send some letters to the business. You should let the company know that you are withdrawing your authorization for automatic payments to be deducted from your account. Removing permissions in this way is referred to as "revoking authorization." See an example letter by clicking here:
  2. Talk to and write your financial institution. Notify your financial institution that you have "revoked authorization" for the company to continue withdrawing money automatically from your account. To view a sample letter, please click here. You can find online applications at some banks and credit unions.
  3. You can instruct your bank to stop an automatic payment from being deducted from your account even if you haven't revoked your authorization with the company. By doing so, you are telling your bank to stop processing the company's automatic payments from your account. To view an example "stop payment order," please click here.
    1. Sending a stop payment order to your bank at least three business days before the payment is due will allow them to cancel the payment. An order can be given verbally, in writing, or over the phone.
    2. A written stop payment order may be required to halt upcoming payments. Within 14 days of giving your bank verbal notice, you must submit a written order if requested.
    3. When submitting a written stop-payment order, it's a good idea to include a copy of your revocation to the company (see step 1).
  • Keep tabs on your finances. If you notice a payment that you did not approve (authorize), or if a payment was made after you revoked approval, you should contact your bank immediately. As long as you notify your bank within 60 days of discovering an unauthorized transaction, you have the right to dispute the transaction and recover any funds that were improperly transferred. Check out this link for a sample letter

A stop payment order typically incurs a fee from your bank, so keep that in mind. Furthermore, your contract with the company will remain in effect even if you cancel your automatic payment. Stopping automatic payments and canceling your service contract are two separate steps when terminating a subscription to a service like cable or a gym. You are still responsible for making loan payments even if you cancel automatic payments.

Leave a comment below telling us about your positive or negative experiences with setting up and canceling recurring payments.

Submit a complaint to the CFPB about your bank account or service at consumerfinance.gov/complaint or dial (855) 411-2372.

Need answers regarding personal finance products and services? Visit consumerfinance.gov/askcfpb for more information.

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