Close your checking account: To regain control of your financial situation you must take that control away from the lender. If you have received a payday loan over the internet, then you have agreed to give a payday lender access to your checking account. You have given the lender permission to pull money from your account via the automated clearing house (“ACH”) system. They can pull money in just the same way that your cable company routinely debits money from your account to satisfy your monthly ill. The only sure way to prevent the payday lender from continuing to do so is to close your account. You may even want to change banks.
If your account is overdrawn, you must repay this before closing your account.
Close the account in person. Keep a copy of the form you receive from the bank when you close the account.
Stop writing checks. Stop using your debit card. You cannot close your account if you continue to use it. It would be best if you withdrew any remaining balance. Transact only in cash for at least one or two weeks.
Opt out of overdraft protection before you close your old account. It would be best if you went in person to opt out of overdraft protection. There is always the possibility that your bank will continue to allow the lender to debit your account. If there are no funds in the account, then the bank may ignore the debit but charge you with an insufficient funds fee. Banks are not supposed to do this, but it can occur. If it does, you can probably rectify the situation, but it will take work on your part.
Recently I heard from an advocate who works with people facing payday loan debt traps. He commented that “we have seen closed accounts reopened and the overdraft protection used by the financial institution to pay payday lenders.”
Make sure that no new deposits arrive in your old account. A new deposit could re-open the account, and it would create an opportunity for your internet payday lender to successfully debit your account.
Review the activity at your old checking account: Be careful to make sure that you do not have existing payments scheduled. Determine if you have any outstanding checks or as-yet-settled debit card payments. You may have arranged a recurring payment with your insurer, your mortgage lender, a cell phone company, or another ongoing account.
You should also pay attention to likely deposits. If you regularly receive your pay by direct deposit, then you must make sure that your employer knows to change the destination of your future paychecks. Likewise, if other entities are likely to deposit money in your account in the future, you should reset those plans. You will need to complete new paperwork with your employer. Employers are required to get your permission to direct a direct deposit to an account. Moreover, they must have the routing and account numbers associated with the new account.
Redirect your future automatic payments. Earlier I said that you need to tell your billers to stop debit your old account. While it is not necessary to establish new auto-payments, it is wise to put things back on to “automatic pilot.”