Automatic withdrawals


Establish and terminate automated payments

3 minutes

A direct withdrawal is an automatic transaction that transfers funds from your account to another.

Direct withdrawals are convenient for paying regular bills, such as your monthly phone bill or gym membership. Automatic payment ensures that you don't have to remember to settle the bill and eliminates the risk of incurring late fees.

However, direct withdrawals can pose issues if:

  • You have insufficient funds in your account.
  • The service provider is untrustworthy.
  • You are unaware of how to terminate the payments when necessary.

Initiating a direct withdrawal

To set up a direct withdrawal, you arrange for a direct withdrawal authorization. This allows a service provider to deduct funds from your account.

Providers may stipulate direct withdrawal payments as a requirement for enrolling in a product or service.

You can arrange for a direct withdrawal to be deducted from your bank account or establish a recurring payment from your credit card.

The amount can be fixed or variable and can be deducted on specific dates or at regular intervals. For instance, you could set up a direct withdrawal with:

  • Your real estate agent to pay your rent on the first day of each month.
  • Your electricity provider to charge your credit card for the bill every 3 months.

Fixed amounts on set dates are the most manageable. You know exactly what to anticipate and when.

If your direct withdrawal involves variable amounts, review the bill beforehand to ensure that:

  • You have sufficient funds in your bank account.
  • The service provider deducts the accurate amount.

Insufficient funds in your account can result in your bank and the service provider charging you dishonor or overdraft fees.

Set up direct withdrawals to be deducted from your account the day after your payday, so you can be sure you have enough funds available.

Terminating a direct withdrawal

To cancel a direct withdrawal, you typically need to contact your bank and the service provider.

Cancelling direct withdrawals from your bank account

To terminate a direct withdrawal from your bank account, get in touch with your bank:

  • Inform them of the date you wish to cease the payments.
  • Request a letter confirming your cancellation.

Once your bank receives your request, they are required to:

  • halt the payments.
  • forward your cancellation to the service provider's bank.

It is advisable to also send a written letter or email to the service provider, although it is not mandatory.

Retain copies of any correspondence you send.

Cancelling recurring payments from your credit card

To cancel a recurring payment from your credit card, you need to contact your service provider first, and then your bank.

If direct withdrawal is a contractual obligation or service condition

If it is a requirement to pay through direct withdrawal as stated in the service agreement, consider seeking legal counsel before canceling. If you still have outstanding payments for a service, you will need to negotiate an alternative method of payment.

Example letters for terminating a direct withdrawal

The Financial Rights Legal Centre provides sample letters that you can utilize to terminate a direct withdrawal. Input the necessary information online to generate the letter:

  • correspondence to the bank
  • message to the business

Issues with direct withdrawals

Prior to establishing a direct withdrawal, ensure that you have confidence in the service provider. By granting them permission, you are allowing them to extract funds from your account.

Regularly monitor your accounts to ensure that the provider is withdrawing the agreed-upon amount.

If you identify an inaccurate or unauthorized transaction, promptly contact your bank.

To obtain a list of your direct debits or recurring payments, request one from your bank.

If your bank fails to terminate your direct withdrawal upon request, you have the option to submit a complaint. If your direct debit is still deducted from your account after requesting cancellation, your bank is prohibited from charging you overdraft fees to compensate for the deduction.

Alternative options for automatic payments

In some cases, you can arrange an automatic payment through your online banking instead of a direct debit. For instance, with PayPal. Although the provider still maintains control over the withdrawal, you have the ability to initiate, cease, or modify the automatic payment yourself.

If a business grants discounts for direct debits, inquire if they extend the same offer for other automatic payment methods.

Prioritize if direct debit payment is suitable for your needs. If alternative payment methods are not presented, explore other service providers.

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