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Grab my wallet and take out monthly payments


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#1 markber

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Posted 24 February 2005 - 04:18 PM

Do you agree with these statements from the following article:

- Once you give permission to a merchant to withdraw money from your checking account, you can NOT stop it unless the merchant agrees.

- you can NEVER stop the withdrawal authorization altogether... The only way to do it is to close ALL of your accounts with the bank involved. Thatís because bankers will go into any of your accounts to make the withdrawals if the ďauthorizedĒ account is short.

- You may think you are giving permission to a merchant for only "monthly payments" for a "specific amount" but you're not. ... once you give authority, you give blanket authority for any and all withdrawals.


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Automatic Withdrawals

by - Tom Martino
February 11, 2005

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Imagine buying something very expensive and the clerk asks: "How do you want to pay for it?"

You answer: "Here are the keys to my house. Feel free to enter my home, go into the kitchen, grab my purse, open my wallet, and take out monthly payments."

Sound unbelievable?

In essence that's what we do when we give merchants permission to make automatic withdrawals from our checking accounts. You may consider it convenient but it can be a very dangerous practice.

Here are some things you should know that financial institutions and merchants do not openly tell you:

Once you give permission to a merchant to withdraw money from your checking account, you can NOT stop it unless the merchant agrees. So if you have a dispute with a merchant over a product or service you could have a big problem. Let's say you want to stop making payments but the merchant doesn't agree. You end up the loser.



If you were simply writing checks out of your checking account, you could choose NOT to pay a bill if you had a dispute. In that case the vendor would have to come after you in court to get payment. But with an automatic withdrawal, your bank gets involved and will NOT allow you to stop the withdrawals.


Your bank will let you stop one withdrawal at a time but that will cost you up to $25 each time you do it.



Keep in mind ... you can NEVER stop the withdrawal authorization altogether, unless the merchant agrees to it. The only way to do it is to close ALL of your accounts with the bank involved. Thatís because bankers will go into any of your accounts to make the withdrawals if the ďauthorizedĒ account is short.

Here is another aspect of automatic withdrawals you need to know about. You may think you are giving permission to a merchant for only "monthly payments" for a "specific amount" but you're not. Financial institutions do not have a mechanism for limiting the frequency of withdrawals nor the amount of payments. In essence, once you give authority, you give blanket authority for any and all withdrawals.

Many merchants charge a penalty fee when they try to debit your account and there is not enough money to make the payment. Since the withdrawals are automated, the merchantí computer then keeps accessing your account (sometimes on an hourly basis) to check for available funds. Each time they check and find inadequate funds, you may be charged a penalty. Those charges can amount to hundreds of dollars in just a few hours!

I recommend you NEVER give any merchant authority to withdraw money from your account unless you follow these rules:



1. Establish a special account for automatic withdrawals. Keep only enough money in the account for the monthly payments that will be automatically withdrawn.





2. Do not have ANY other accounts with that bank (because they will go into other accounts).



3. Watch the account closely. If a merchant makes an unauthorized or inaccurate withdrawal report it immediately to both the financial institution and the merchant.



4. To stop automatic withdrawals, the only safe way is to close the account.



5. If you start a new account, make sure you do not give the financial institution authority to take from the new account to settle debits from other accounts you have (or had) at the same institution. Sometimes even after you close an account, a bank will honor an automatic withdrawal on the closed account. Then the bank will try to collect the amount from your new account.

#2 jrr7

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Posted 07 March 2005 - 04:27 PM

QUOTE(markber @ Feb 24 2005, 11:18 AM)
Do you agree with these statements from the following article:

- Once you give permission to a merchant to withdraw money from your checking account, you can NOT stop it unless the merchant agrees. 

- you can NEVER stop the withdrawal authorization altogether... The only way to do it is to close ALL of your accounts with the bank involved.  Thatís because bankers will go into any of your accounts to make the withdrawals if the ďauthorizedĒ account is short.

- You may think you are giving permission to a merchant for only "monthly payments" for a "specific amount" but you're not.  ... once you give authority, you give blanket authority for any and all withdrawals.


It depends a lot from bank to bank. Banks are required to have a section on preauthorized electronic transfers in their terms & conditions. If your bank's T&Cs say the above, then it is true. The banks I've seen say "Pay one stop payment fee and give us the merchant's name and we will stop that merchant's authorization to withdraw funds from your account." Of course the merchant may open an account under another name, and you'd have to file another stop payment order.

When you sign a contract with a merchant, the bank is not obligated to enforce it. If the merchant withdraws money above and beyond what your agreement with them is, you have to go after the merchant in small claims court. The ACH process does not include a provision to only authorize a specific amount.

#3 markber

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Posted 08 March 2005 - 07:43 AM

QUOTE(jrr7 @ Mar 7 2005, 09:27 AM)
QUOTE(markber @ Feb 24 2005, 11:18 AM)
Do you agree with these statements from the following article:

- Once you give permission to a merchant to withdraw money from your checking account, you can NOT stop it unless the merchant agrees.†

- you can NEVER stop the withdrawal authorization altogether... The only way to do it is to close ALL of your accounts with the bank involved.† Thatís because bankers will go into any of your accounts to make the withdrawals if the ďauthorizedĒ account is short.

- You may think you are giving permission to a merchant for only "monthly payments" for a "specific amount" but you're not.† ... once you give authority, you give blanket authority for any and all withdrawals.


It depends a lot from bank to bank. Banks are required to have a section on preauthorized electronic transfers in their terms & conditions. If your bank's T&Cs say the above, then it is true. The banks I've seen say "Pay one stop payment fee and give us the merchant's name and we will stop that merchant's authorization to withdraw funds from your account." Of course the merchant may open an account under another name, and you'd have to file another stop payment order.

When you sign a contract with a merchant, the bank is not obligated to enforce it. If the merchant withdraws money above and beyond what your agreement with them is, you have to go after the merchant in small claims court. The ACH process does not include a provision to only authorize a specific amount.
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Very good point! I will try to get more feedback about this article from professional bankers on BankersOnline.com.

#4 markber

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Posted 12 March 2005 - 07:44 PM

The following feedback about Martino's article was posted by Dan Persfull on BankersOnline forum:

"My expertise is in the lending Regulations and Reg. E is not one of my strong suits, but I'll give it a shot and if I get something wrong I'm sure one of my colleagues will correct me. Also keep in mind Reg. E applies to consumer accounts and not to business accounts.


Once you give permission to a merchant to withdraw money from your checking account, you can NOT stop it unless the merchant agrees. And;

you can NEVER stop the withdrawal authorization altogether... The only way to do it is to close ALL of your accounts with the bank involved. Thatís because bankers will go into any of your accounts to make the withdrawals if the ďauthorizedĒ account is short.

Reg. E allows you to revoke the authorization.

Revocation of authorization. Once a financial institution has been notified that the consumer's authorization is no longer valid, it must block all future payments for the particular debit transmitted by the designated payee-originator. The institution may not wait for the payee-originator to terminate the automatic debits. The institution may confirm that the consumer has informed the payee-originator of the revocation (for example, by requiring a copy of the consumer's revocation as written confirmation to be provided within fourteen days of an oral notification). If the institution does not receive the required written confirmation within the fourteen-day period, it may honor subsequent debits to the account.

You may think you are giving permission to a merchant for only "monthly payments" for a "specific amount" but you're not. ... once you give authority, you give blanket authority for any and all withdrawals.

If the payment can vary then the person you are authorizing to process the payment must give you a range of what the payments will be.

Range. A financial institution or designated payee that elects to offer the consumer a specified range of amounts for debiting (in lieu of providing the notice of transfers varying in amount) must provide an acceptable range that could be anticipated by the consumer. For example, if the transfer is for payment of a gas bill, an appropriate range might be based on the highest bill in winter and the lowest bill in summer.


Quite simply stated, Mr. Martino has no idea what he is talking about. "

Source: bankersonline.com/ubbthreads/showflat.php/Cat/0/Number/331537/an/0/page/0#331537





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