It is becoming more and more common to use recurring automatic electronic payments to pay bills. “Recurring automatic payments” are when you have more than one payment set up to come out of your bank account at roughly the same time every week or month. There are some important rights that you have in regard to recurring automatic payments. Many of these rights come from a federal law called the Electronic Funds Transfer Act (EFTA).
First, no one can take money out of your account unless the person or company taking the funds has permission to take a specific amount. For a recurring automatic payment, this must be in writing. This writing can be on paper or online. The person or company you pay must provide a copy of the authorization if you ask.
Second, no one can force you to agree to repeated monthly electronic payments from your account for “an extension of credit.” An extension of credit is when someone lends money or gives you services and goods and charges you interest or a fee. Debts like credit cards, payday loans, or car loans are examples of situations where credit is extended to a borrower.
Third, you can always cancel a recurring payment. You can cancel by sending a notice to your bank at least three days before the next transfer. Even though you can do it orally, a written revocation is better in case you have to prove you gave the notice. You should also send a second letter to the person or company who is being paid. This letter should clearly say it is not okay to continue taking money out of your account.
You have a right to file a lawsuit under EFTA for damages and attorney fees for any of the following (not a complete list):
- Against the person or company taking the money:
- Refusing to provide a copy of an authorization for recurring payment
- Starting electronic transfers without authorization
- Attempting to get you to waive your rights
- Against your bank:
- Not honoring your stop-payment notice for a recurring automatic payment or electronic check transaction.
There are some cases where EFTA does not apply to recurring automatic payments. For example, if the creditor you owe is the bank where your account is, EFTA does not give you the same cancellation rights. You may have other rights in that situation, however.