Automatic bank account deductions (slightly off-topic)

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Automatic bank account deductions (slightly off-topic)

Post by fuelsaving » Fri Oct 19, 2007 6:57 pm

A common complain I see about various MLM scams is this: you give them your bank details for either a one-off or multiple payment, and then when you leave the company or cancel your order, they keep taking money from your account anyway - and often the only way to stop it is to close your bank account and open another.

How come the banks allow this to happen? In the UK we have what is called "Direct Debit", which works the same way (many people use it to pay monthly utility bills, etc). You give a company authority to take variable amounts of money from your bank account as and when. But if you want to stop it you just write to the bank and say "Don't give any more money to Company X", and that's it - they can make as many requests to the bank as they like, but no more money will be taken from your account. (Of course, if you still owe money to Company X then they will still seek to get it via other means, but that's another matter.)

Why does the US banking system make it so hard to stop these deductions?

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Re: Automatic bank account deductions (slightly off-topic)

Post by wserra » Sat Oct 20, 2007 8:38 pm

fuelsaving wrote:Why does the US banking system make it so hard to stop these deductions?
To the extent that it is more complicated here than in the UK, it's because credit-card-issuing banks like automatic debits. They like any type of charges. And they tend to make the rules. I took the Bar a long time ago, but still remember my bar review instructor giving us a very useful rule of thumb: if you get an essay question with a bank on one side, the answer is that the bank wins. You then just have to figure out the correct reason.

The actual details: it's not that hard to stop automatic debits from bank accounts. Federal law requires a bank to stop a preauthorized payment if given three days notice (banks don't care that much about account debits, unlike credit card charges). And credit card charges for which the consumer has given the merchant written advance authorization are harder to stop - if push comes to shove, you have to give the card issuer 90 days notice, and dispute each charge within the 30-day grace period in the interim. All notifications should be in writing.

Recently, Visa has attempted to help the situation. I understand that not all Visa-issuing banks cooperate.

And lots of people either don't know or don't bother to follow the procedures. Moral: never give preauthorizations to any merchant you don't completely trust. MLMs are by definition untrustworthy.
"A wise man proportions belief to the evidence."
- David Hume