Stopping automatic withdrawals from a bank account

The following question was submitted to John Roska, an attorney/writer whose weekly newspaper column, "The Law Q&A," ran in the Champaign News Gazette.

Question

I had some plumbing work done, and signed what I thought was a receipt for payment. Later, I noticed a transfer from my bank account to the plumber. When I called them about it, they said I’d signed a service contract, and had agreed to monthly payments from my bank. They said I couldn’t cancel. When I asked my bank to stop the payments, they said I had to deal with the plumber. What can I do?

Answer

Your bank should follow your instructions, and stop the withdrawals. If they won’t, close your account, and complain to the FDIC.

Your bank can charge you for stopping the payments—like they can for stopping payment on a check. But they can’t refuse to stop the payments.

“EFTA” is the federal law that applies. The Electronic Funds Transfer Act covers this and other kinds of transfers from your account, including ATM transfers.

EFTA calls regular payments “preauthorized transfers,” and specifically gives bank customers the right to cancel them.

The central idea is that it’s your money, so you control it. Not (usually) the bank, and definitely not outsiders, like credit card companies or merchants who want your money.

The authorization for a preauthorized transfer must be in writing, or electronic. Somewhat surprisingly, you can give an electronic authorization over the phone. (That’s how phone scammers have been able to use a recording of someone saying “yes” to “can you hear me?” as an authorization for bank withdrawals.)

Whoever takes your authorization for a bank transfer must give you a copy of that authorization. The plumber should therefore have given you something showing your authorization.

To stop a payment, you just have to tell you bank “orally or in writing at least three business days before the scheduled date of the transfer.” Banks can require a written cancellation within 14 days of an oral cancellation. If your bank wants it in writing, and you don’t comply, your “oral stop-payment order ceases to be binding after 14 days.”

You should also tell the plumber you’re cancelling the payments—in writing. Date it, and keep a copy for your paper trail.

The plumber—or anyone else getting paid by transfers from your account—can’t stop you from stopping the transfers. That’s strictly between you and your bank. The plumber may claim you’re breaching a contract by cancelling, but you’re generally better off dealing with that after protecting your bank account.

If you tell your bank to stop payments “in accordance with the terms and conditions of the account,” and they don’t, EFTA says the bank’s liable to you. You only have 60 days to dispute unauthorized transfers with your bank, so be sure to check each monthly statement promptly.

If your bank simply refuses to stop the payments, close the account. And then complain to a regulator. The FDIC regulates banks; the Office of Thrift Supervision (OTS) regulates federal savings banks; and the National Credit Union Association (NCUA) regulates credit unions.