How to Prevent an Internet Payday Lender from Debiting Your Checking Account

by
Adam Rust

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.”

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In review:

• Now that you have closed your old account and opened a new one at a different bank or credit union, you should make sure that you have completed each of the following:

• Determine when your next paycheck will arrive in your new account. You need to know when you can transition back from cash.

• Advise your creditors to bill you directly by giving them your payment details. You will need to grant permission to those companies to access your new account.

• Stop writing checks or using your old debit card and make sure that you do not have outstanding transactions that have not yet settled. Your efforts to close your old account will be nullified if the bank sees that you are still actively using the account.

Close the account in person. If possible, arrange to speak directly to the branch manager. Be clear about your situation. Your bank will appreciate that you have given them notice. Tell the manager that you have authorized a payday lender to access your account. They will probably feel better knowing that you are not upset with their services. They will understand your plight.

• File a complaint with your state Attorney General against the payday lender. Their office should know that a lender is breaking the law.

• Let the branch manager know that you have established a checking account at a different financial Institution. Tell the manager you have moved your direct deposits and canceled future withdrawals from your checking account. Make it clear that you know you will need to stop using your debit card. Give your checkbook back to the bank.

• Ask that the account be “hard closed.” It is not sufficient to merely place a stop payment order. Such a request will probably work for the next attempted debit, but there is no guarantee that it will block future requests from your payday lender. Unscrupulous payday lenders know how to get around this procedure.

One last word of advice: You may face a situation where a person has let a long time pass without presenting your check. If that is the case, you should proactively address the situation with them. It would help if you offered to write a new check. Ask the person to give the old check back to you. You may be concerned that you could convey the wrong impression to this person. You may worry that you are implicitly sending a message that you do not trust them.

Nonetheless, you have to protect yourself. Even a person with good intentions for your problems could forget that you wrote a new check and accidentally present the old one. Get the check and rip it up.

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