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. That’s because bankers will go into any of your accounts to make the withdrawals if the “authorized” 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. That’s because bankers will go into any of your accounts to make the withdrawals if the “authorized” 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 merchant’ 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.

Not sure where you saw this article, but it is extremely incorrect. If you want to post a link to it, I'd be hapy to respond.

Can you also print your response here so we can share this information? Thanks

Happy, you can find the article at troubleshooter.com (I googled the author and the title). The guy is a radio and television personality in the Denver area, with his show syndicated by Westwood One.

I think Mr. Martino needs to read Reg E.

I didn't read the whole article because it was so blatantly bad and wrong that it's going to get me riled up.

It's this stuff that makes me so aggravated. They spout off at the mouth without knowing the facts and it misleads people into believing things that aren't true. Just *irks* me (and that's me putting it the nice way. Insert your own swear words!)

A lot of the excerpt above gives the perception that the customer is not responsible for ensuring that the merchant #1 is legitimate and honest; and #2 only withdraws from the account as agreed. That's ridiculous! The customer has the responsibility to review their bank statements for unauthorized withdrawals. That's one of the risks the customer takes when dealing with a merchant (or scam as it could be). That is why I agree with #3 listed above.

Personally, I only allow regular bills to be paid automatically from my account IF it is a set amount each month (such as mortgage). If it is a variable amount (such as phone bill), I prefer to pay it with a check, just in case I would not agree with the provider - it's much easier to keep my money than get a refund check.

I agree with BOLers too. My irritation rests with this premise that nothing is ever the customer's fault. I will admit that there are unsavory merchants and maybe even banks that ruin it for the rest of us, and if you think about it...all the regs we have are in effect because some institution or group was taking advantage of someone and it needed to be stopped.

Anyway, It is also crucial that customers understand that banks have rights (like offset) to protect themselves also. These rights are held sacred and not abused, as is purported in the comments above.

One last thing I leave the reader with, if you exercise the caution discussed by my esteemed colleagues and you have a good relationship with your bank, this auto debit/withdrawl stuff is actually a great service and a handy convenience that wa orignally intended to allow customers to save time by going straight to the account instead of spending time writing lots of checks. I also think that if you ask the vast majority of people who are cautious about who they give authorization to and examine account statements regularly you will find they like and enjoy the service.

Also, consider the source. My two cents worth.

Sounds like he had a bad experience with a health club. The thing that's missing in Martino's article is that the consumer probably signed a contract with the merchant that includes a commitment not to cancel the debit authorization.

Ditto on the health club. In my experience, they really try to lock you in so you can't escape. Would be nice if these class action types would focus on them for awhile.

HEY - how about this thought? What if we could classify Health Clubs as MSB's?

They probably signed a contract that the full price must be paid whether you continue to attend or not. Those pesky contracts - darned, you actually have to pay.

This guy has a syndicated radio show I have heard a few times. He is one of those that always tells his callers to sue. The callers are not the sharpest knives in the drawer. Never their fault-" I didnt know...wasnt told..blah blah blah." As mentioned earlier, there are definately disreputable merchants, etc that take advantage of people, but it goes both ways. I am not suprised his article was so ridiculous....

Yeah, but what if some company keeps putting money in my account that was meant for someone else but the bank messed up. I get to spend that money as if it were my own, right?

(Sorry, haven't seen one of those posts in a while)

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. That’s because bankers will go into any of your accounts to make the withdrawals if the “authorized” 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.

The contract notwithstanding, the customer has the absolute right to tell the health club or bood club or insurance company or whatever to stop taking the funds from his account electronically. That's part of Regulation E and it trumps contract law.

So, the customer may have to complete the contract, but need not do so by ACH debit.

The problem I had wasn't with the initial year. The problem was after the year was up, it took some really, really, really, really nasty letters to get them to understand I wasn't renewing!

A lot of the excerpt above gives the perception that the customer is not responsible for ensuring that the merchant #1 is legitimate and honest; and #2 only withdraws from the account as agreed. That's ridiculous! The customer has the responsibility to review their bank statements for unauthorized withdrawals. That's one of the risks the customer takes when dealing with a merchant (or scam as it could be). That is why I agree with #3 listed above.
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Cathy, Are you saying that if the customer is a victim of the bank paying an unauthorized item, its their own fault?

Personally, I only allow regular bills to be paid automatically from my account IF it is a set amount each month (such as mortgage). If it is a variable amount (such as phone bill), I prefer to pay it with a check, just in case I would not agree with the provider - it's much easier to keep my money than get a refund check.
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Sounds like you know there is a problem with the system!

I think EFTs/Auto Payments are a great idea as long as it is going into my account and not out.

If I send a check or pay with my credit card, my signature is a authorization to the bank to pay that item.
The problem is if someone presents any item with my account information, the bank will pay it!

Patrick,

I am not saying that it is the victim's fault for the merchant taking money out of the account when it is unauthorized. I am saying that it is the responsibility of the victim at that point to notify their bank that the merchant had made a mistake. We had a customer who didn't look at his bank statements for 6 MONTHS, all the while someone was using his debit card for online purchases that racked up to several thousand dollars. If he had just looked at a statement in those 6 months, he could have saved himself and the bank a whole lot of grief.

I don't believe there is a problem with "the system". I believe that some merchants can make life difficult if you disagree with the amount they have billed you. For instance, if I allowed my credit card payment to be ACH'd from my account and I discover on my bill that they have charged me late fees or something and I disagree with that, then it is much easier for me to call the company and get them to take the charge off so that when I write my check it is applied to the entire bill, rather than them sending me a refund check.

Have you ever tried to cancel a month-to-month billing from say, AOL? It has been my experience from working at the bank that it is near impossible to get them to cancel the ACH payments coming out of the account. Now if I were paying my monthly bill by check, I wouldn't have to go to the bank each month and fill out an unauthorized ACH form to reverse the payment until AOL got their act together and cancelled.

Cathy,
I agree, the customer has a responsibility to find and report any unauthorized items, but the bank also has a responsibility to the customer.
Did you know that in 2003 over two million people were victims of unauthorized withdrawals, { Fraud } and this was because the banks pay first and ask questions later!
"You say you don't believe there is a problem with "the system". you believe that some merchants can make life difficult if you disagree with the amount they have billed you."
This is the point the first poster is trying to make, if you have no control over the merchant to cancel an agreement then the bank should do it for you!

Patrick.

Patrick,
Bear in mind that the bank doesn't know the transaction is unauthorized until it is reported. This problem is a direct result of consumers, in general, wanting everything faster and more convenient.
DQ

Quote:

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if you have no control over the merchant to cancel an agreement then the bank should do it for you!

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Note...cancel agreement. I often tell my customers who have ACH disputes that although we can take care of the transaction this way (with the WSUPP) it doesn't end their obligation whatsoever to the merchant. Just like the gym scenario.
The consumer is the ultimate person responsible for their finances. 99% of the time, Banks can 'take care of' unauthorized or authorization revoked ACH transactions on consumer accounts as long as the consumer gave the Bank proper notice and completed a WSUPP form.
The only hassle is with corporate entries (CCD's) but the way I understand it is because the laws (UCC) are different for businesses.

Patrick, how do you propose that a bank ask questions prior to paying the ACH? Just as Devil Queen mentioned, the bank has no idea that it is unauthorized. It's not like the merchant gives the bank a copy of the contract. The bank can only do so much and that is if it is notified in the proper time frames to return such an item. Beyond that the consumer needs to consult an attorney to deal with the merchant.

Patrick, how do you propose that a bank ask questions prior to paying the ACH?
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Cathy,
I know that banks cannot ask questions prior to paying any items presented, and therein lies the problem!
Banks will pay any item presented, authorized or not. So a system is needed to ensure only authorized items get paid.

" It's not like the merchant gives the bank a copy of the contract." This is one idea or maybe a code or pin number on
the customers signature card!!

I have a business, and personal account at the same bank and will not authorize any Auto/Payments from my accounts,
except for checks and credit/debit cards that require my signature or pin number.
Patrick.

Quote:

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So a system is needed to ensure only authorized items get paid.

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To a degree that system is already in place, although it is incumbent upon the account holder to check their account and notify the bank of any unauthorized transaction. Additionally, once teh merchant has a Pin for the customer, there is nothing to stop them from using it continuously. Unless you are suggesting teh Pin number change for each use. In this day and age of internet and phone banking, the customer should easily be able to notify the bank within the 60 day time window. Asking the banks to further develop software/hardware that would be used system wide (across every US bank) would be cost prohibitive and probably add to increased fees to customers...and if you remember the discussions on check 21 customers sure don't want to pay any more!

Quote:

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So a system is needed to ensure only authorized items get paid.

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Yep. And it's called the consumer.

Think about it. How are banks to know?

Ultimately, the consumer has to take responsibilty for gaurding their account.

Post deleted by Michele Petry

Post deleted by Michele Petry

OK folks.

Let's remember this forum is designed to answer non-bankers' questions and not as a place for us to attack the questioners. I hate to spoil your sport here, but let's not take pot-shots at folks here even if we don't agree with their points of view. It's OK to disagree, but let's not get nasty.

A lot of non-bankers don't understand how banking works. We'd prefer that this be a place where they can get answers, not acrimony.

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.
YES!
- you can NEVER stop the withdrawal authorization altogether...
YES!

The only way to do it is to close ALL of your accounts with the bank involved. That’s because bankers will go into any of your accounts to make the withdrawals if the “authorized” account is short.
NO!

- 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.
YES!

OK, now let me ask you a question! Why are you asking for this information?
Patrick.

Happygilmore
To a degree that system is already in place,

How? I don't see any system in place to stop unauthorized items being paid.
My idea about a Pin/Code on the customer signature card was just that, an idea.
The other idea about the merchant giving the bank a copy of the agreement so the bank knows it's authorized is a better one!
I have the best idea, to protect me, I use none of the banks services unless it's absolutely necessary for my benefit!
Patrick.

Let me thank everybody for very productive discussion. I have learned many new things about banks reading replies to my post.

Quote:

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OK, now let me ask you a question! Why are you asking for this information?
Patrick.

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I am not a banker. I do not know all details how banks work. I asked these questions because I was concerned about safety of my banking accounts and some of the statements in Mr. Martino's article made my worry even more. This discussion and, particularly, citations of Reg. E by Dan Persfull helped me to address some of my concerns.

Thanks again for sharing your thoughts!

Mark

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How? I don't see any system in place to stop unauthorized items being paid

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Reg E and Reg CC both have provisions in place for a consumer to dispute any unauthorized transactions. It takes a simple phone call to your bank...and you must also view your statement in a timely fashion. There is no cost effective way for a bank to verify each and every transaction coming in for authenticity. I'm sorry you feel that this is the banks job, but it is not. There are systems in palce that the banks must follow, just as consumers should.