Automatic Payments Can Be Easy to Start, but Hard to Stop

CONSUMERS who agree to automatic withdrawals from their bank accounts to pay for subscriptions, health club memberships, loans and the like may sometimes hit roadblocks when they try to stop the charges.

“It’s a big problem,” said Lauren Saunders, associate director with the National Consumer Law Center. Banks are obligated to help customers stop unwanted debits, she says, but they are sometimes slow to do so.

Many companies — including mortgage and student loan servicers, debt collectors and payday lenders — actively solicit approval from consumers for such preauthorized debits, according to the federal Consumer Financial Protection Bureau.

The agency recently reminded companies that they must obtain a consumer’s permission before automatically debiting an account and that they are legally required to give customers a copy of the terms of any preauthorized debits, including the amount and timing of the payments.

Often, consumers agree to such payments for convenience or to obtain a lower interest rate on a loan, because some lenders offer slightly better terms if borrowers agree to recurring monthly debits. (Loan payments by automatic debits generally cannot be required, but lenders can offer incentives for borrowers to sign up for them.)

In other cases, as with online payday lenders, borrowers may not realize that they have authorized an automatic renewal of a loan and so are surprised when a payment is deducted, Ms. Saunders said. Consumers may then end up paying overdraft fees to their bank if the automatic debits result in overspending their account.

Along with its recent bulletin, the bureau offered suggestions to consumers for stopping unwanted debits. Consumers, the bureau’s director, Richard Cordray, said in a prepared statement, should know that they “have the right to stop these charges at any time.”

First, call and write to the company making the withdrawals to revoke your permission. Next, call and write to your bank, telling it that you have revoked authorization. The bureau has posted on its website new sample letters that you can use to write to the company and to your bank.

To stop a scheduled payment, you usually must give the bank a “stop payment” order three business days before the debit is scheduled. If the bank asks you for a written confirmation for an order given over the phone, make sure to send it within 14 days, and include a copy of the letter you sent to the company, revoking your permission.

Here are some questions and answers about automatic debits:

■ Are preauthorized debits the same thing as online bill payments?

Both methods let you pay a financial obligation electronically, but they operate differently. When you schedule recurring payments through your bank’s online bill pay service, you tell your bank to send the payments for you. With automatic debits, you give a company or merchant your bank account number and your permission to withdraw payment from your account on a recurring schedule.

■ Will I be charged a fee for canceling an automatic debit?

If you formally instruct your bank to cancel an automatic charge, the bank may impose a “stop payment” fee — typically around $30 or $35 — as it would if you canceled a paper check.

■ Does stopping the automatic debit cancel my contract with the merchant?

No. Stopping the payment simply means that it will not come out of your account. It does not necessarily mean you do not owe the money. If you have a contract — say, for a gym membership or for cable television service — that you no longer want, be sure to cancel the agreement with the company. If you cancel an automatic payment on a loan, but still owe a balance, you must make payments on the loan some other way, the consumer bureau noted.