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Hey there! Just wanted to give you some friendly and helpful advice. If you’re looking to stop a payday lender from collecting money from your account, there’s actually a simple solution! All you need to do is write a letter to both your lender and your bank in a certified format. By doing this, you can prevent any automatic payments from going out. This can come in handy if you’re currently trying to figure out your finances elsewhere or if you suspect that the lender might be overcharging you. Hope this helps you out!
- In the United States, payday lenders use a system called ACH Authorization to collect repayments from you on your pay date each month.
- ACH Authorization is incredibly convenient as it automatically collects payments on the agreed-upon days.
- This system is also helpful for customers since all they need to do is ensure that they have enough money in their account for the collection. There is no need to call, make manual payments, visit a bank, or send a check.
Can I Prevent Payday Loan Companies from Withdrawing Money from My Account?
Absolutely! You have the power to block payday loan companies from debiting money out of your account. This can be particularly useful if you have more pressing financial needs or if you’re unable to afford their payments at the moment.
4 Simple Ways to Stop Payday Loan Companies From Debiting Your Account Legally
1. Send a Certified Letter to the Payday Loan Company
To legally stop payday lenders from debiting your bank account, you can send a certified letter. This letter will be binding by law, ensuring that the lender adheres to your request.
2. Send a Certified Letter To Your Bank or Credit Union
In addition to notifying the payday loan company, it’s crucial to inform your bank or credit union as well. By sending a certified letter, you confirm that the payday lender no longer has permission to withdraw funds from your account. This stops them from automatically collecting money.
3. Submit a Stop Payment Order on a Payday Loan (Contact Your Bank)
If you want to stop a specific payment, make sure to request a stop at least three days before the scheduled repayment date.
4. Clear Your Account or Explore Debt Settlement Options
To prevent payday loan companies from accessing your account, the simplest solution is to clear your outstanding debts. Once you have paid off the debt, they will no longer have the right to take payments from you.
If you believe you are being overcharged and wish to address this issue separately, you can file a complaint with the Online Lenders Alliance (OLA) or the Securities and Exchange Commission (SEC) to escalate your case.
In case you are facing financial difficulties, debt settlement or debt management could be helpful. These programs assist you in organizing and settling your debts. Your debt settlement provider will stop automatic payments and allocate a small monthly amount towards each creditor until you become debt-free, even if it’s just $5 or $10. It requires strict budgeting for a few years, but it will relieve the stress of automatic payments and falling behind on your debts.
How Payday Lenders Collect Repayments Automatically
Payday loan companies in the USA utilize a system called ACH Authorization to automatically withdraw payments from your bank account on each repayment date.
This process is completely legal, and it offers a convenient and practical way for both parties involved to handle repayments.
For the lender, it allows them to easily access the accounts of all customers who owe them money and collect payments from potentially hundreds or thousands of individuals each day. As for the borrower, it means their repayments are taken care of automatically, eliminating the need to make phone calls, send checks, visit the bank, or manually make payments. As long as they have sufficient funds in their bank account, their monthly repayments are made on time, making it business as usual.
Automated or recurring payments are quite common when it comes to repaying loans, including personal loans, installment loans, and mortgages. It is similar to a direct debit or standing order, although with ACH Authorization, cancellation would need to be done on the lender’s or bank’s end.
Why Should I Consider Stopping Automatic Payments from a Payday Lender?
It’s completely normal and legal for payday lenders to take automatic repayments as agreed upon in your loan agreement. In fact, 99% of borrowers have no issues with these automatic payments.
However, there are certain situations where you might want to stop these automatic payments. Here are a few examples:
Lack of trust in the lender – If you suspect that the lender is overcharging you, it’s understandable that you would want to stop the collections immediately. While strong regulations are in place in the US to prevent this, there have been isolated cases in the past.
Dealing with other debts or financial concerns – If you are repaying other creditors for credit cards or loans, or if you urgently need money, you have the option to halt the automatic payments and allocate that money for your own needs (e.g., $100 or $200). Please note that although you can stop the payments, your loan will still be outstanding, and you may incur late fees for missed repayments.
What Happens if You Stop Payment on a Payday Loan?
If you decide to stop payment on a payday loan without informing the lender and the loan is still in effect, you will be subjected to regular interest charges. Additionally, if the loan becomes overdue, you will also face late fees and it can negatively impact your credit score.
If you find yourself in a situation where you need to block payment for a payday loan for a valid reason, such as a more pressing expense, you can discuss this with the lender. They may be able to temporarily freeze your account and work out a new arrangement. However, it is important to always communicate with the lender, as not doing so will only lead to more fees and complications.
How to Cancel a Payday Loan
Sure! When you apply for a payday loan, it’s important to review the terms and conditions. Usually, there is a clause that allows you to cancel the loan within 24 or 48 hours without any fees. In some cases, you might only be charged for one day’s worth of fees, which is manageable.
If you decide to cancel the loan at a later point, you may need to pay the interest that has accumulated up until that date. For example, if the loan has been open for 14 days, you’ll pay for the interest accumulated over those 14 days. However, if you want to cancel the loan while it’s still open, it’s best to clear the debt completely and pay it off on time.