Stop Automatic Payments From Payday Lenders

Quick answer

• Understand your rights regarding automatic withdrawals.
• Contact your bank or credit union immediately to revoke authorization.
• Send a written stop payment request to the lender.
• Keep records of all communications and transactions.
• If issues persist, explore legal options or seek consumer protection assistance.
• Be aware of potential fees for stop payment orders.

What to check first (before you choose a payoff plan)

Your Loan Agreement and Authorization

Review the initial agreement you signed with the payday lender. Look for the section where you authorized automatic electronic withdrawals from your bank account. This authorization is key to understanding how to revoke permission.

Lender Contact Information

Ensure you have the correct and current contact information for the payday lender. This includes their mailing address, phone number, and any official customer service email. You’ll need this to send your formal requests.

Bank or Credit Union Contact Information

Know how to contact your financial institution. You’ll need to inform them of your decision to stop payments and follow their specific procedures for placing a stop payment order.

Your Account Balance and Transaction History

Check your bank account balance regularly. Understand your typical cash flow to avoid overdrafts if payments are still attempted. Review recent transactions to identify any unauthorized or unexpected debits.

Payoff Plan: How to Block Payday Loan Debits

This section outlines the steps to take to stop payday lenders from automatically withdrawing funds from your account.

1. Review Your Authorization:

• What to do: Carefully re-read the agreement you signed with the payday lender. Identify the specific clause that grants them permission to debit your bank account electronically.
• What “good” looks like: You clearly understand the terms of your authorization and the lender’s right to withdraw funds.
• Common mistake: Assuming you can just tell your bank to stop payments without understanding the underlying authorization. This can lead to disputes.
• How to avoid: Always read the fine print before signing any loan agreement.

2. Notify Your Bank or Credit Union:

• What to do: Contact your financial institution immediately. Inform them that you are revoking your authorization for the payday lender to debit your account. Request to place a formal “stop payment” order on any future electronic withdrawals from that specific lender.
• What “good” looks like: Your bank has initiated the stop payment process and provided you with confirmation, likely a reference number.
• Common mistake: Waiting too long to notify your bank, allowing a withdrawal to occur before they can act.
• How to avoid: Act as soon as you decide to stop payments.

3. Send a Written Stop Payment Request to the Lender:

• What to do: Draft a formal letter to the payday lender. Clearly state that you are revoking your authorization for electronic withdrawals and demand that they cease all automatic debits from your account. Include your loan account number, your bank account details (only the last four digits might be necessary for identification, avoid full numbers), and the date.
• What “good” looks like: You have a dated, written record of your request sent via certified mail with a return receipt requested.
• Common mistake: Only making a verbal request to the lender, which is difficult to prove.
• How to avoid: Always follow up verbal communication with written documentation.

4. Send a Written Stop Payment Request to Your Bank:

• What to do: Follow up your verbal request to your bank with a written confirmation. This often involves filling out a specific form provided by the bank for stop payment orders. Ensure it includes the lender’s name, the amount of the original payment (if known), and the date of the attempted withdrawal.
• What “good” looks like: A fully completed and signed stop payment order form submitted to your bank, with a copy for your records.
• Common mistake: Not providing sufficient detail to the bank, leading to an ineffective stop payment.
• How to avoid: Ask your bank for their exact requirements and fill out the form meticulously.

5. Monitor Your Bank Account:

• What to do: Keep a close eye on your bank account activity for the next few weeks. Look for any attempted debits from the payday lender.
• What “good” looks like: No further unauthorized withdrawals from the payday lender appear on your statement.
• Common mistake: Becoming complacent and not monitoring your account, allowing a debited payment to go unnoticed.
• How to avoid: Set up transaction alerts with your bank.

6. Address Any Returned Payment Fees:

• What to do: If the lender attempts a debit and it fails because of your stop payment order, your bank might charge an overdraft or returned item fee. If the lender tries to debit again and it’s returned, the lender might also attempt to charge a returned item fee. Understand these potential fees.
• What “good” looks like: You are aware of potential fees and have a plan to manage them, or you are disputing them if they are improperly charged.
• Common mistake: Being surprised by unexpected fees from either the bank or the lender.
• How to avoid: Discuss potential fees with your bank when placing the stop payment order.

7. Continue Making Payments (If Applicable):

• What to do: If you still owe money on the loan, you will likely need to make payments through alternative, authorized methods. Contact the lender to arrange for manual payments (e.g., money order, cashier’s check) that you control.
• What “good” looks like: You are making payments according to a new, agreed-upon schedule without authorizing automatic debits.
• Common mistake: Assuming stopping automatic payments means the loan is canceled or no longer owed.
• How to avoid: Understand that stopping automatic payments is about controlling how you pay, not if you pay.

8. Keep Meticulous Records:

• What to do: Save copies of everything: the loan agreement, your written requests to the lender and bank, certified mail receipts, bank statements showing transactions, and any communication logs.
• What “good” looks like: You have a complete, organized file of all documentation related to the loan and your efforts to stop payments.
• Common mistake: Losing or discarding important documents, which can be crucial if a dispute arises.
• How to avoid: Create a dedicated folder (physical or digital) for this loan.

9. Contact Consumer Protection Agencies (If Necessary):

• What to do: If the lender continues to harass you, attempts unauthorized withdrawals, or violates your rights, contact consumer protection agencies like the Consumer Financial Protection Bureau (CFPB).
• What “good” looks like: You have filed a complaint and are receiving assistance or guidance from a reputable agency.
• Common mistake: Giving up or feeling alone when facing an uncooperative lender.
• How to avoid: Know that resources are available to help you.

10. Consider Legal Counsel:

• What to do: If the situation is complex or the lender is aggressive, consult with a consumer protection attorney.
• What “good” looks like: You have received professional legal advice tailored to your specific situation.
• Common mistake: Not seeking legal help when the stakes are high.
• How to avoid: Research attorneys specializing in consumer debt.

Options and trade-offs

• Revoking Authorization Directly: This involves formally telling the lender you withdraw their permission to debit your account and informing your bank.
• When it fits: This is the primary method for stopping ongoing automatic payments when you no longer want the lender to have direct access to your bank account. It’s crucial for regaining control of your finances.

• Bank’s Stop Payment Order: Your bank can place a formal stop payment on specific electronic withdrawals.
• When it fits: This is a critical step to ensure your bank honors your request and doesn’t process attempted debits from the lender. It works in conjunction with revoking authorization.

• Written Communication: Sending formal letters to both the lender and your bank.
• When it fits: This creates a paper trail, providing essential proof of your requests and actions, which is vital if disputes arise.

• Consumer Protection Agencies: Filing complaints with organizations like the CFPB.
• When it fits: This is useful if the lender is engaging in predatory practices, harassment, or ignoring your attempts to stop payments. These agencies can mediate or investigate.

• Legal Counsel: Consulting with an attorney specializing in consumer law.
• When it fits: This is for complex situations, significant financial distress, or when facing aggressive debt collection tactics. An attorney can advise on your rights and legal options.

• Debt Management Plan (DMP): Working with a non-profit credit counseling agency to consolidate and repay debts.
• When it fits: If you have multiple payday loans or other debts and are struggling with repayment, a DMP can offer a structured solution, though it might not directly stop an already authorized debit without other steps.

• Debt Consolidation Loan: Taking out a new loan to pay off existing debts.
• When it fits: This is typically for larger debts and might not be a viable option for small, high-interest payday loans. It requires good credit and careful consideration of the new loan’s terms.

• Negotiating with the Lender: Attempting to reach a new payment agreement.
• When it fits: This can be an option if you still intend to repay the loan but want to change the payment method or terms, but it must be done after you have revoked automatic withdrawal authorization.

Common mistakes (and what happens if you ignore them)

Mistake	What it causes	Fix
Not reading the loan agreement carefully	Unknowingly authorizing automatic withdrawals and other potentially unfavorable terms.	Always read all documents thoroughly before signing. If you don’t understand something, ask for clarification or seek advice.
Only making a verbal request to the bank	The bank may not have a record, leading to continued debits and potential disputes.	Always follow up verbal requests with written documentation (a signed form or letter) and keep a copy.
Waiting too long to notify your bank	The lender may successfully debit your account before the stop payment order is processed, leading to further financial strain.	Contact your bank immediately upon deciding to stop payments. Be proactive.
Assuming stopping payments cancels the debt	The loan balance remains, and the lender will likely pursue other collection methods, potentially including legal action or reporting to credit bureaus.	Understand that stopping automatic payments is about controlling the payment method, not eliminating the debt. You still owe the money and need to arrange for repayment.
Not sending written notice to the lender	The lender may claim they were not officially informed, leading to continued attempts to debit and potential fees.	Always send a formal, dated, written request to the lender (certified mail is best) revoking authorization.
Ignoring potential bank fees	Unexpected overdraft or returned item fees can worsen your financial situation.	Discuss potential fees with your bank when placing a stop payment order. Budget for any unavoidable fees.
Not monitoring your bank account	Missed unauthorized debits or fees can go unnoticed, leading to further financial problems and potential overdrafts.	Set up transaction alerts with your bank and regularly review your statements.
Failing to arrange alternative payments	Defaulting on the loan, which can lead to significant penalties, higher interest, and severe damage to your credit score.	Once you’ve stopped automatic payments, contact the lender immediately to arrange for manual payments (e.g., money order, cashier’s check) to avoid default.
Not keeping records	Lack of proof can be detrimental if the lender or bank disputes your actions or claims.	Maintain a comprehensive file of all loan documents, correspondence, and bank records.
Not seeking help when overwhelmed	Escalating financial problems, increased stress, and potential legal issues.	If you’re struggling, reach out to consumer protection agencies or a credit counselor.

Decision rules (simple if/then)

• If you authorized automatic debits from a payday lender, then you need to formally revoke that authorization to stop future payments.
• If you want to stop automatic payments, then you must notify both your bank and the payday lender in writing.
• If your bank has a specific form for stop payment orders, then you should use it to ensure all necessary information is provided.
• If the payday lender continues to attempt unauthorized debits after you’ve revoked authorization and notified your bank, then you should file a complaint with the CFPB.
• If you are struggling to repay the payday loan even after stopping automatic payments, then explore options like debt counseling or negotiating a payment plan.
• If you receive unexpected fees from your bank or the lender after stopping payments, then review your agreements and contact them to dispute the fees if they are unwarranted.
• If the payday lender threatens legal action or reports a default, then review your records and consider consulting a consumer protection attorney.
• If you have multiple payday loans, then consider seeking advice from a non-profit credit counseling agency to manage your debt.
• If you are unsure about the legality of a lender’s practices, then research consumer protection laws in your state or contact a legal aid society.
• If the lender claims your stop payment order is invalid, then refer to your written documentation and your bank’s confirmation of the stop payment.

FAQ

Q: Can a payday lender still try to take money from my account after I tell them to stop?

A: Yes, they might try, especially if they don’t receive your formal written revocation or if your bank doesn’t properly process the stop payment. This is why multiple steps are crucial.

Q: What if my bank charges me a fee for a stop payment order?

A: Most banks do charge a fee for stop payment orders. You should inquire about this fee beforehand and factor it into your budget.

Q: Do I still owe the payday loan if I stop automatic payments?

A: Yes, absolutely. Stopping automatic payments only changes how you pay; it does not erase your debt. You are still obligated to repay the loan.

Q: How long does a stop payment order last?

A: The duration can vary by bank and the type of order. For electronic debits, it’s often effective until revoked or expired, but it’s best to confirm with your bank.

Q: What happens if the lender tries to deposit a check I wrote them after I stopped electronic payments?

A: If you previously wrote a check, and your bank has a stop payment order for that specific check, it should not clear. However, it’s wise to also place a stop payment on any outstanding checks directly with your bank.

Q: Can I get my money back if a payment was already debited after I asked them to stop?

A: If the debit occurred before your bank could effectively process the stop payment, it can be difficult to reverse. Your recourse might be to dispute the charge with your bank or through consumer protection channels if the lender acted improperly.

Q: What if the payday lender sends my debt to collections?

A: If you’ve taken the proper steps to revoke authorization and have records, you can inform the collection agency of your actions. However, they may still attempt to collect, and you may need further assistance.

What this page does NOT cover (and where to go next)

• Specific legal advice for your situation.
• Where to go next: Consult with a consumer protection attorney or a legal aid society.
• Detailed analysis of payday loan laws in every U.S. state.
• Where to go next: Research your state’s specific consumer protection laws or contact your state’s Attorney General’s office.
• Negotiating the principal amount of your payday loan.
• Where to go next: Explore options with a non-profit credit counseling agency or consider debt settlement programs (with caution).
• Opening new bank accounts to avoid the lender.
• Where to go next: If you’ve experienced significant issues, consider changing banks after you’ve resolved the immediate problem with the payday lender.
• Understanding the broader implications of payday loan debt cycles.
• Where to go next: Read resources on financial literacy and responsible borrowing.