Automatic payments and the law

A consumer may stop payment of a preauthorized electronic fund transfer from the consumer’s account by notifying the financial institution orally or in writing at least three business days before the scheduled date of the transfer.

The right sits with the account holder and is exercised at the financial institution. The three-business-day window is what the regulation specifies.

In plain termsYou can tell your bank to stop a scheduled automatic payment. Under the rule the notice must reach the bank at least three business days before the payment date, and it can be given by phone or in writing.

The financial institution may require written confirmation of a stop-payment order within 14 days of an oral notification. An institution that requires it shall inform the consumer of the requirement and provide the address where confirmation must be sent. An oral stop-payment order ceases to be binding after 14 days if the consumer fails to provide the required written confirmation.

Two obligations sit on the institution here: it must tell the consumer that written confirmation is required, and it must supply the address.

In plain termsIf you stop the payment by phone, the bank may ask you to confirm it in writing within 14 days — but only if it tells you so up front and gives you the address. Without that written confirmation, an oral stop can lapse after 14 days.

Preauthorized electronic fund transfers from a consumer’s account may be authorised only by a writing signed or similarly authenticated by the consumer. The person that obtains the authorisation shall provide a copy to the consumer.

An electronic signature satisfies this only where it complies with the E-SIGN Act, 15 U.S.C. 7001 et seq.

In plain termsA lender can only set up recurring withdrawals from your account with your signed or similarly authenticated written permission, and it must give you a copy.

Where a preauthorized transfer will vary in amount from the previous transfer under the same authorisation, or from the preauthorized amount, the payee or the institution shall send written notice of the amount and date at least 10 days before the scheduled transfer.

In plain termsIf a scheduled payment will be a different amount than last time, the lender or bank must send you written notice of the new amount and date at least 10 days ahead.

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 the written confirmation. If it does not receive that confirmation within the 14-day period, it may honour subsequent debits.

So the two things are connected in the regulation: notice to the institution, and notice to the payee.

In plain termsTelling your bank to stop is not always the end of it: the bank may ask you to also notify the lender, and if you don’t confirm in writing within 14 days it can let later charges through. The rule expects notice to both the bank and the lender.