Can't Close Your Bank Account? Alternative Methods to Avoid Automatic Withdrawals by Your Payday Lenders
June 9, 2011 at 10:11 pm
Payday lenders are undoubtedly smart. Payday loan companies approve loans for hundreds of borrowers everyday yet have also found a way to make sure they always get paid. And what better way to do so than to automatically debit your bank account on your payday? They know you will have the money because you just got paid and they take advantage of this by debiting you a couple of hours after you get your money deposited. By doing so, they collect their funds before you even get a chance to put your hands on your hard-earned money. With a blink of an eye, your paycheck is gone and you have no other choice but to take out another payday loan to get you through until your next payday. And two weeks after, the same thing happens all over again. Sadly, this is the story of almost everyone stuck in the payday loan trap.
If you look at the problem closely, the solution is fairly simple: Close your bank account.
But not all payday loan consumers have the privilege of easily closing their bank accounts. The most common reasons why some people might not want to close their bank account is: A) they get direct deposit, B) they pay other bills with the account, or C) they have a negative balance. This article discusses how you can keep payday lenders away from your money without closing your bank account.
A. If you are expecting a paycheck by direct deposit soon, you probably would not want to close your bank account. The solution here is simple: Put a freeze on your account. A frozen bank account simply means that only cash and check deposits are allowed and any withdrawals are prohibited. As a matter of fact, you cannot use your debit or ATM card either. Simply put, putting a freeze on your bank account means that your paycheck will still be direct deposited into your account but your payday lenders will not be able to debit you. If you are in this situation, the best approach you can take is to put a freeze on your account BEFORE your payday. As soon as you get paid, you can withdraw your money and close your bank account immediately. You may then open a new account (preferably with a different bank) and make sure to let your employer know of the changes right away. This will give your employer enough time to change your direct deposit information on file so that you can rest assured that you will receive your next paycheck without any problems.
B. If you cannot close your bank account because you use it to pay other bills, you can set up an arrangement with your bank to put a “hard block” specifically on your payday lenders. First, you need to compose a letter for each of your payday lenders stating that you are no longer authorizing them to debit your bank account automatically. According to the Electronic Transfer Act, 15 U.S.C. 1693 et seq., you may revoke any company’s right to debit you electronically (even if you have previously allowed them to do so) as long as you provide them with a written document stating they no longer have your consent to withdraw money out of your bank account. Make a copy of these documents before sending them to your payday lenders (you can send them by e-mail, fax, or mail) and take the copies to the bank with you. Letting your bank know that your lenders are not authorized to debit your bank account makes the process of putting a “hard block” even easier. To help you out, you should also print out one of your past statements, circle or highlight the names of the payday lenders, along with the payment amount that the lenders usually withdraw. Having a “hard block” in place can allow you to use your bank account as you usually do, with the benefit of your payday lenders no longer debiting you.
C. Some people cannot close their bank accounts due to a negative balance, usually because of their payday loans. Payday lenders cannot withdraw money from an overdrawn bank account. However, you now face a different problem: overdraft fees. If you have a negative balance, your bank will charge you with an overdraft fee every time your payday lenders try to debit your account. Your payday lenders may not be getting paid but you are ultimately getting into more debt, this time with your bank. To put an end to these overdraft fees, you can take the same approach discussed in the paragraph above: revoke your payday lenders’ authorization to electronically debit and put a “hard block” on your payday lenders. If your bank allows it, you should also try to put a freeze on your bank account. When your bank no longer charges you with overdraft fees, it will be easier for you to bring your account up to a positive balance. As soon as you do, close your bank account immediately.
While putting a “hard block” on your payday lenders can help you stop your payday lenders from debiting your account, they are not always guaranteed to work. Below are some problems you may face if you choose not to close your bank account:
1. Most payday lenders conduct business as different company names. If you put a “hard block” on a specific payday loan company, this company can easily use one of their D.B.A.’s (Doing Business As) to successfully debit your account.
2. Some banks may charge a fee for each “hard block” that you put on your account. If you are lucky, your bank will only charge you a one-time fee to put a permanent block on each of your payday lender. However, some banks will charge a fee for EACH transaction that you want to block, which means that you will have to pay a fee for as long as your bank account remains open.
Clearly, it is much easier and safer to close your bank account as soon as you can. As a matter of fact, an estimated 90% of people who chose not to close their bank accounts for any of the reasons disclosed above ultimately end up closing their bank accounts after a few weeks due to problems associated with their payday loan debt. Obviously, you can keep your bank account open but only if you must. However, if you want guaranteed results, your main goal should still be to completely close your bank account as soon as possible.
After closing your bank account, you will undoubtedly want to open up a new one. You have the option of staying with the same bank or choosing a different one. If you prefer to stay with your current bank, make sure you advise them not to link your two accounts. Most banks will automatically link previous accounts to new ones as a courtesy to their clients. Tell them that you do not want your bank accounts linked. If your bank links your old account to the new one and your payday lenders try to debit you out of your old bank account, the payment will be successfully withdrawn out of your new one (even if your payday lenders do not have your new bank account number). If your bank can guarantee that your bank accounts will not be linked, staying with the same bank will not be a problem. If not, it is best to take your money to a different bank.
Of course, closing your bank account does not mean that you are free from your payday loan debt. You still have to take full responsibility for paying off your payday loans. This is simply the first step that you need to take to take control of your finances. After you prioritize your money and create a budget, make sure you pay off your lenders as soon as you can. Work out an agreement with your payday lenders in which you can pay them off slowly or pay off one payday lender at a time. If you need professional help, seek a payday loan consolidation company to assist you.
To get ahead, you should not continue to work for your payday lenders and handing them your hard-earned money each payday. Stop allowing your lenders to take another penny from your bank account. Do everything you can to gain back control of your finances and your life.
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