How to Stop Payday Loan Automatic Payments

It isn’t always easy to secure a bank loan, especially if you’re financially strapped or have bad credit. Payday loans offer an easy alternative for those who need quick cash for debt management. But it’s important to understand what you’re getting yourself into before signing any papers. 

If you’ve been approved for a payday loan, your lender may have signed you up for automatic payments. If you’re not careful, it’s easy to end up emptying or even possibly overdraft your account without noticing. Here, we’re going to show you how to stop payday loans if you’re unable to keep up with automatic withdrawals. 

What is a Payday Loan?

Payday loans are generally short-term loans of just a few hundred to a couple of thousand dollars at most. As the name suggests, the idea is for borrowers to repay the loan on their next payday. The money can come from any steady income source, whether it be a paycheck, pension, or even Social Security. 

Payday loans can help people cover sudden expenses before they snowball out of control. Plenty of people rely on this type of loan to cover rent, utilities, medical costs, and other bills they can’t allow to fall to the wayside. 

Unexpected Expenses

It’s usually easy to qualify with just a postdated check or a valid bank account, and many lenders won’t review your credit score or credit report. People with bad credit often turn to payday loans when banks won’t lend them any money. 

Taking out a payday loan doesn’t come without its risks. The Annual Percentage Rate (APR) typically ranges between 200% and 500%, though you can find some lenders with even higher interest rates. By comparison, banks usually charge between 3% and 36% for a personal loan. According to Experian, credit cards typically charge around 14% to 15% APR.

Many payday lenders will set up automatic payments with new customers. This gives a lender the right to take money straight out of your bank account, sometimes without notice. This is typically called an “Automated Clearing House Credit and Debit Authorization Agreement,” also known as an ACH Authorization. 

Payday Loan Laws and Regulations

According to Federal law, payday loans are a perfectly legal way of lending money. However, state laws in some areas completely ban payday lending.

In places where they’re legal, most payday lenders must follow strict regulations when loaning money. States such as Idaho, South Dakota, Texas, and Wisconsin have no cap rates on fees or interest rates.

How to Stop Automatic Payments

If you’ve applied to and been approved for a payday loan, you may have agreed to automatic withdrawals for your weekly or monthly payments. If you don’t monitor your checking account closely, it can be easy to get caught up in payday loan debt. Fortunately, there are a couple of ways that you can stop payment before your next paycheck if need be. 

Talk to Your Payday Lender

The easiest way to stop automatic payday payments is by going directly to your lender. Any contract you sign should have an ACH authorization clause that details exactly how to stop payments from going through. You have to follow these instructions if you want to halt automatic withdrawals from your checking account. 

With most payday loan agreements, the ACH Authorization comes along with a strict deadline for stopping payments. Whether you’re dealing with someone in person or use an online lender, you have to send them an official notification before this date to halt a withdrawal. The letter should include your name, address, the date, and your account number. You should also send a copy of the letter to your bank or credit union. 

If your paperwork doesn’t have an ACH Authorization clause, or if it doesn’t describe how to stop payments, then your loan agreement is invalid according to Federal law. You won’t have to make any further payments, and you may even be entitled to a refund. 

Talk to Your Bank

If for any reason you can’t reach your lender, or if they’re refusing to cooperate, you may have to turn to your bank to stop automatic payments. Banks are required to stop automatic payments on request as long as they’re given at least three business days’ notice

You can also call to stop payments, but you may have to provide an additional written request within two weeks. Some banks even have an online form you can fill out to stop payments, though the request may not go through immediately. 

Bank

Close Out Your Account

If all else fails, you can close down your bank account as a last resort. While this will prevent lenders from accessing your cash, it can be time-consuming and expensive to deal with. You should only consider closing your bank account in extreme cases, such as when a lender won’t respond to your request to revoke authorization or when you don’t have enough time to notify your bank.  

To close your account, contact your bank in person, on the phone, or via certified mail to let them know. You’ll have to sign a closing form and withdraw any cash or pay off any current balances on your account. If you have any money leftover, the bank should send a cheque to the address on file.

Filing a Complaint

If your lender or bank refuses to stop withdrawals after you’ve sent out an official notification, you should file a complaint. The Consumer Financial Protection Bureau (CFPB) is responsible for overseeing financial institutions such as payday lenders. You can contact the CFPB to file a complaint, or you can contact your state regulator or attorney general. 

Conclusion

If you can’t get a loan from a bank or borrow from friends or family members, a payday loan can help you cover looming bills and expenses. However, it’s important to do your due diligence to avoid going into debt over automatic payments. You can stop payday loans by talking to your lender or your bank to ensure your checking account remains untouched. 

Just remember that you’re still responsible for repayment to financial services. It’s highly advisable that you look into other ways to take charge of your finances, such as debt consolidation, credit counseling, or an extended payment plan.

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Riley Draper