Electronic Debits on Payday Loans: Know Your Rights

Posted on Friday, October 23rd, 2009 at 5:49 pm in Miscellaneous Cash Loan Info

For many, the web is the most convenient place to get a payday loan. The lending company transfers the money to your bank account electronically so that you can access it the following business day. When it’s time to pay back the loan, the payday lender debits your account for the loan amount plus the fees you owe. Or, if you’ve asked to extend your payday loan – or you have a loan agreement that includes several repayments – they draw the appropriate finance charges from your bank account.

But what if the payday loan issuer turns out to be dishonest and takes more money than they should, or they make a mistake and don’t correct it? While the majority of cash advance loan operators are legitimate firms that are run on ethical lines, there’s always the odd one that charges its customers too much. So, it’s useful to know your rights when it comes to electronic debits by payday lenders, in case you ever have a bad experience.

The first thing you should know is that under both federal law and loan industry regulations you’re entitled to ask your bank to stop an electronic debit by any creditor including a payday lender. You still have to pay back whatever you owe, but it is a way to avoid paying the bank’s steep overdraft and bounced check charges if your account is empty.

If your loan is set up to be repaid in a single payment, federal law doesn’t allow you to cancel a debit arrangement but industry regulations do. With payday loan that’s amortized over several payments, you’re supported by both sets of rules. In particular, the Electronic Fund Transfer Act (EFTA at 15 U.S.C. 1693a (9)) says you can cancel authorization for any given debit as well as for future debits. Your bank is permitted to charge you a fee for this service.

You’ll need to give your bank at least three days’ notice, either in writing or orally, of your request. The bank might ask you to follow up an oral instruction with a written letter within two weeks. In addition, you’ll have to send your payday loan provider a letter informing them of your action, and send a copy to the bank too. If you still owe money on your cash advance, you should make other arrangements for your repayment to avoid defaulting. Remember to check your bank statements carefully over the next few months to make sure there aren’t any unauthorized withdrawals on your account.

When you sign up for an online cash advance, the loan agreement must state that you have the right to instruct your bank not to permit the lender to draw funds from your account. As with any legal document, make sure you read the fine print before you sign anything, and don’t be afraid to ask questions. Just make sure you remember to let the lender know you’ve exercised your rights, and then send them a check to settle your outstanding debt.

Related posts:

1. Payday Loans in Virginia: Your Rights as a Borrower
2. A Cash Advance Can Cost You Less Than Bank Fees
3. Benefits of a No Fax Payday Loan