Before bankruptcy, I tell my clients to stop the automatic withdrawals to those internet payday loans. They always find it’s so hard to get their banks to help. Today’s New York Times says the same thing. The Times says that’s because the banks love those overdraft fees.
Probably the most important job of a bank is to make sure nobody takes money out of your account, unless you okay it. They try to do that on paper checks, by comparing your signature on the check with your signature card.
But when someone posts an ACH transaction on your account, as far as I can tell, nobody looks at anything. That’s one reason these internet payday loans are so dangerous.
(Legal payday loans in Virginia are not allowed to set up automatic withdrawals. But most internet payday loan companies know they are illegal and don’t care.)
The Electronic Funds Transfer Act give you important rights to protect your bank account, if you know to use them.
You have the right to STOP a pre-authorized electronic transfer up to three days before the transfer is scheduled by notifying your bank. You can notify them orally or in writing–obviously writing is smarter. Keep a copy.
(You should notify the payday loan people too. That’s not likely to stop them; but it improves your legal position against your bank.)
You then have to notify the bank within 60 days if they allow the money to come out anyway.
The bank then has ten days to investigate and one more day to put the money back. (Even if the bank can’t get the money back from the payday loan, they still have to reimburse you!) If they don’t, you can sue them. You can sue for the money you lost, which would include overdraft fees. (A quarter of people who take out payday loans get hit with overdraft fees when the payments come out.) Plus a penalty of $100 to $1000. Plus the bank has to pay your lawyer. (Three times the money you lost if the court says the failure was willful.)
I’ve threatened it. But I’ve never had to sue under the Electronic Funds Transfer Act. The New York Times article has me eager for an opportunity.
For consumers, I hope this helps your attitude when you tell the bank to stop a payday loan automatic withdrawal. You are not begging for a favor–even if that’s the way they treat you. You are asking them to do their main job–keeping your money safe! And you have rights under Federal Law to sue them if they don’t do it!