CFPB: Companies Must Get Authorization as Part of Auto-Debit Agreement
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CFPB: Companies Must Get Authorization as Part of Auto-Debit Agreement

November 24, 2015

The Consumer Financial Protection Bureau (CFPB) is reminding companies that they are required by law to obtain authorization before automatically debiting a consumer's account. Companies must also provide to the consumer written notification of the terms of the auto debit agreement.

The bulletins come after the CFPB found that one or more companies failed to provide to consumers the information as required by law, such as the amount and timing of the payments to which the consumer agreed.

If consumers are not given clear information on the terms of auto debits, they may not be able to manage payments or ensure their account balance is large enough to avoid being hit with overdraft or non-sufficient fund fees. In some cases, consumers have also reported companies not obtaining proper authorization to auto debit an account.

Under federal law, consumers have the right to stop automatic debits from their account. A consumer may decide after authorizing a merchant or lender to make withdrawals from their account that they want to revoke authorization. For example, a consumer may decide to use a different payment method for future payments, or they may want to stop a single payment because they lack enough money in the account when the payment is scheduled.

In some cases, however, consumers report having trouble stopping these automatic charges. To help consumers who may be getting the runaround, the CFPB is releasing sample letters for those seeking to revoke a company's permission to automatically debit their accounts.

While consumers' circumstances vary, in general, revoking a company's authorization should stop the auto debits. If a consumer is concerned that the company will not honor the revocation, or the company indicates that the consumer did not revoke in time to stop the next scheduled payment, the consumer may wish to notify the bank or credit union that the authorization has been revoked, or instruct them to do a stop payment order.

Many companies use auto debit to receive payments, but the CFPB is urging the consumers be wary of who they allow access to their bank account.

Before agreeing to let a company automatically take money out of a bank account, consumers should make sure the company is legitimate and credible. Consumers should never give account or debit card information to a company that they are at all unsure about.

A company cannot require a consumer to repay a loan by automatic debit from their checking account as a condition for giving them a loan. The exception to this is overdraft lines of credit.

Consumers should pay close attention to their bank account balance and scheduled auto debits to make sure they will have enough money to make a scheduled payment. If an account balance is too low, a consumer could incur overdraft fees from their bank and the company initiating the auto debit could also charge a fee. Consumers should monitor account to make sure the amount and timing of the transfers are what they agreed to.

Consumers should monitor their accounts for unauthorized payments or transfers and let their bank or credit union know right away if there is a payment that should not have been made. Federal law gives consumers the right to dispute and get money back for unauthorized transfers from their account as long as they notify the bank or credit union in time.

Consumers having a problem using or cancelling automatic payments can submit a complaint to the Consumer Financial Protection Bureau.

To see a sample letter or read a copy of the bulletin, visit the CFPB website.