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CFPB Warns Companies About Automatic Debits

CFPB Warns Companies About Automatic Debits

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This article was last updated Dec 14, 2015, but some terms and conditions may have changed or are no longer available. For the most accurate and up to date information please consult the terms and conditions found on the issuer website.

The CFPB recently issued a reminder to companies about their legal responsibility to get customer approval before taking out an automatic debit. The release comes after the CFPB reviewed financial companies and found that some aren’t being completely transparent on the amount and timing of payments before setting up auto-withdrawal. Many consumers have also expressed difficulty in reversing auto debits.

How it Works

Automatic bill payments are incredibly convenient and helps ensure you never miss a payment or get charged late fees. These are most commonly used to pay bills and other recurring payments for services such as utility bills, gym fees, and various memberships such as Netflix or magazine subscriptions. Some companies, such as student loan lenders, even give borrowers cheaper interest rates or allow for split monthly payments as an incentive to sign-up for automatic debits.

To set-up an auto-pay program you usually must provide the company you’re paying with your bank account or credit card information and sign a form that gives them permission to debit payments from your account on a recurring basis. You agree to let them automatically debit payments of the same amount each time your bill comes due. If the amounts vary from one billing cycle to the next, as they often do with utility bills, for example, you will need to grant them the authority to deduct amounts that fall into a specific range. In that case, the company should notify you at least 10 days ahead of time if the payment will be different from the authorized amount or range.

What You Need to Know

Withautomatic debits, which are different than auto bill-pay, you give permission for that company to withdrawal funds from your account. The difference between these two is who is given permission to withdrawal funds; your bank or the company. With recurring bill-pay you give permission to your bank to send payments to the company.

The CFPB warns consumers to be wary of any company that pressures you to set-up automatic debits. Before agreeing to that type of arrangement, make sure the company is legitimate and also has a proven track record of excellent and responsive customer service. Never share your account information with a company you are not familiar with or don’t completely trust.

Consumers should also know that although you have the right to cancel or stop auto-payments, it doesn’t change your payment obligations to the company. It also doesn’t break any contractual obligations you have with that company.

Your Legal Rights

The company must give you a copy of the terms of your payment authorization, which must be laid out in a clear and understandable way. You should understand how much and how often money will be taken out of your account. Monitor your account to make sure the amount and timing of the transfers are what you agreed to.

Federal law provides certain protections for recurring automatic payments. You have the right to stop a company from taking automatic payments from your bank account, even if you previously allowed the payments. For example, you may decide to cancel your membership or service with the company, or you might decide to pay with a different account or card.  

Federal law also gives you the right to dispute and get your money back for any unauthorized transfers from your account as long as you inform your bank in time. Click here for a sample letter. Be aware that banks often charge a fee for a stop payment order.

How to Stop Automatic Debits

The Consumer Financial Protection Bureau offers these tips for canceling auto-pay:

  • Call and write the company. Tell the company that you are taking away your permission for the company to take automatic payments out of your bank account. This is called “revoking authorization.” Click here for a sample letter.
  • Call and write your bank or credit union. Tell your bank that you have “revoked authorization” for the company to take automatic payments from your account. Click here for a sample letter. Some banks and credit unions may offer you an online form.
  • Even if you have not revoked your authorization with the company, you can stop an automatic payment from being charged to your account by giving your bank a “stop payment order.” This instructs your bank to stop allowing the company to take payments from your account. Click here for a sample “stop payment order.”

To stop the next scheduled payment, give your bank the stop payment order at least three business days before the payment is scheduled. You can give the order in person, over the phone or in writing. To stop future payments, you might have to send your bank the stop payment order in writing. If your bank asks for a written order, make sure to provide it within 14 days of your oral notification.

How to Register a Complaint

Of course there are also unscrupulous businesses that hope you will have difficulty stopping these automatic payments so they can continue to remove funds from your bank account or credit card, even when you want it to end. If you feel that a company is debiting your account without permission or legitimate cause, you can contact federal consumer protection agencies.

You should first contact your financial institution. For additional help, you can call the FDIC toll-free at 1-877-ASK-FDIC (1-877-275-3342) or send an e-mail to www2.fdic.gov/starsmail. You can also contact the Consumer Financial Protection Bureau at consumerfinance.gov/complaint or call 855-411-2372.

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