Automatic Bank Payments: Watch Out for Errors

Automatic debit payments from bank accounts can be a convenient way to pay regular bills, saving you time, checks, and postage. These days, people preauthorize monthly payments for everything from mortgages, student loans, credit cards, and utilities to car payments, life insurance premiums, and health club memberships.

But you can get into trouble if your automatic payment goes awry.

How Do Automatic Debit Payments Work?

An automatic debit payment is when you give permission to a company, like a merchant or lender, to directly take payments out of your bank account on a recurring basis.

Automatic Payments vs. Bill Pay

Automatic debit payments are different than the recurring bill pay feature your bank offers. With recurring bill pay, you give permission to the bank to make payments to the company. With automatic debits, on the other hand, you give permission to the company to withdraw the payments from your bank account.

Trouble Spots With Automatic Debit Payments

If your bank makes an error in dealing with your automatic debit payments, you might face problems such as the following:

• Your bank pays late. If your bank doesn't make automatic mortgage payments on time, you could suffer the consequences, such as late fees and a blemish on your credit reports.
• Your bank doesn't make payments. What if payments aren't made at all? One man whose life insurance premium was deducted monthly from his checking account had no idea that the bank, due to a systems error, had stopped making payments. The policy lapsed, but the family didn't find out until the man died.
• Your bank makes payments that you want to stop. You might also find yourself facing the opposite problem: You want the bank to stop deducting a payment from your account, but every time you check your bank statement, there it is again.

How to Solve Problems With Unauthorized and Preauthorized Payments

You have the right to halt unauthorized and most preauthorized deductions at any time. Your bank might also have to cover late fees caused by its late payments. If you have a problem, here's what to do.

• Contact your bank to stop automatic debits. If you're having trouble stopping an automatic debit, the fastest way to get results is to contact your bank, not the business that's receiving payments. Under federal law, you must call or write your financial institution requesting a "stop" at least three business days before the scheduled debit. If you make an oral request, the bank may require you to confirm it in writing within 14 business days of your call. (12 C.F.R. § 1005.10 (2024).)
• Notify your bank of unauthorized debts. If you receive a statement that includes an unauthorized debit, notify the bank within 60 days. Once you report the error, the bank must investigate within ten business days, then report the results to you within three business days after that. If the bank finds an error, it must correct it right away. If the bank needs more time to investigate, it must provisionally credit your account while it takes up to 45 more days to look into the matter. (12 C.F.R. § 1005.11 (2024).)
• Check your bank agreement if the bank pays late. If you've been hit with late fees because the bank was late in paying, don't just pay up. Check your deposit agreement to see whether the bank is liable for the late payment fees.

Protect Your Credit

If you think your credit history was tarnished because the bank was late or missed payments, get copies of your credit reports from the big credit bureaus—Experian, TransUnion, and Equifax. If they show missed or late payments the bank was supposed to make, contact the bank and request (politely but firmly) a letter explaining that the error was the bank's fault. Contact the credit bureaus and ask them to correct the incorrect information.

Taking these steps should resolve the situation, but if it doesn't, you can ask the bank to provide correct information to the credit bureaus. If all else fails, you have the right to add a brief statement to your credit files explaining that the bank missed the payment or made it late.

Getting Help

Credit Repair, by Amy Loftsgordon and Cara O'Neill (Nolo), is a comprehensive guide to repairing your credit and includes sample letters and forms.