Breaking up is hard to do, so the song goes. It’s especially true when the relationship involves money and the creditor has bank draft access to your bank account.
Automatic bank drafts are the debt collector or debt settlement company’s favorite way to move money from your account to theirs. You fill out an authorization form and your bank sends them money on a regular basis. Effortless, reliable.
But when you decide the relationship has no future, how do you extract yourself from the automatic bank draft web? Amazingly, it isn’t clear, and it certainly isn’t easy.
Suppose you’ve signed up for a debt settlement program, one of those outfits whose pitch is, we’ll stall your creditors while you send us money (a hunk of which we’ll take for ourselves) until we’re holding enough money to settle each of your debts. The appeal to the beleaguered is huge. It satisfies the urge to honor your debts; it gets your creditors off your phone (supposedly), and it recognizes that it takes time to pay off the debts. What could be better?
Well, for starters, it seldom works that way. But that’s another story. At some point, you want out of the deal. And you want the debt settlement company’s hands out of your bank account. What to do?
The FTC says that notice to your bank is sufficient to terminate your creditor’s access to your account:
There is one situation, however, when you can stop payment. If you’ve arranged for regular payments out of your account to third parties, such as insurance companies, you can stop payment if you notify your institution at least three business days before the scheduled transfer. The notice may be oral or written, but the institution may require a written follow-up within 14 days of the oral notice. If you fail to provide the written follow-up, the institution’s responsibility to stop payment ends.
MoneyHealthCentral’s Jay Fleischman contends that access to your bank account is terminated by communicating with the party who is drafting the account. That’s consistent with the experience my clients have trying to stop the drain of their money once they’ve decided not to pour more money down the debt settlement rat hole. The bank insists it’s helpless to stop the outflow. E How Money says both.
Often, the depositor finds that their efforts may have stopped this month’s payment to the debt settlement leach, but it pops back, live and hungry, next month.
I’m astounded that I can’t find better, clearer information on the subject. That itself probably says a lot about why there are such wildly differing stories about automatic bank drafts.
For the moment, my take-away is this:
- Use automatic bank drafts with caution
- Keep copies of all documents authorizing anyone else access to your money
- Broadcast your decision to terminate automatic drafts to bank and creditor in writing
- Be prepared to close the impacted bank account if necessary
For all the speed and convenience of electronic banking, the problem of breaking up is old fashioned and ever present.
Image licensed under Creative Commons license courtesy of Kumar83.
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Such a common problem and usually not solved by simply asking your bank to stop paying the pre-authorized transaction. What to do?
Withdraw all funds from the account. Open a new account, in the same bank if you’d like, then deposit all of the withdrawn funds from the old account in to this new one. There you go.
Then, call a bankruptcy lawyer And learn how you may be able to completely eliminate those unsecured debts you previously had consolidated.
Hunter Goff recently posted..After Filing Bankruptcy, Chapter 13, Do I Still Pay My Bills?
That works to keep control of the money. I have seen situations, however, where the bank honors the draft on the empty account and charges the hapless depositor overdraft fees. And then the customer gets blacklisted on Chex Systems….
The admonition to see a bankruptcy lawyer about solving the underlying problem is right on.
[...] post on Breaking Out of the Automatic Draft Web found really good company this week when it was included in the Carnival of Personal [...]
[...] posts at Money Health Central, we started out the week with the good news that Cathy’s post on Breaking Out of the Automatic Draft Web found really good company when it was included in the Carnival of Personal Finance. Thanks for the [...]
[...] trust your insurance company, why are you doing business with them? We talked here about the difficulty of extracting yourself from automatic payments; my credo is don’t ever put a credit card or debt management arrangement on automatic bank [...]
Hey Cathy,
I agree the bank draft convenience is certainly a double edged sword. I always tell consumers that if they need to enter a payment plan payoff with a creditor or creditors, it is best to set up a separate account that you will only be using for creditor payments.
That way the consumer can control the amount of money in there and if a mistake happens it won’t bounce a mortgage check or a car payment.
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A separate account for automatic payments is a good idea. The practical issue is that keeping it funded, if you’re someone who has trouble managing money, is probably an equal challenge. But the consequences of a screw up or a change of heart aren’t so great.
Agreed,
I was more thinking about for instances when they settle an account or agree to pay off a debt over a small number of months.
You are right, if they are entering an agreement that is going to be many months or even years of monthly payments, then they should set up an automatic draft from their main account into their debt payoff account so they don’t forget and then blow the new agreement.
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