ACH (Automated Clearing House) authorization works by allowing the lender to take money from a borrower’s bank account, prepaid card account or credit union when repayment of their loan is due.
ACH payments are a popular method of payment in the U.S., offering consumers predictable processing timelines and low per-transaction costs. The Automated Clearing House network processes over 25bn ACH transactions per year.
Here, Dollar Hand explains ACH authorization, exploring what is it, whether it’s safe, and the things you need to know before providing such authorization.
What Is ACH Authorization?
ACH authorization is a type of payment authorization. For those borrowing a loan, an ACH authorization will enable your lender to take out the money they’re owed in repayments electronically from the borrower’s account.
Borrowers will typically be requested to provide ACH authorization during the loan request process. If requested and approved, this will be recorded in the borrower’s loan documentation.
If and when a borrower gives the lender this permission, the lender will then be allowed to collect what they’re owed by the borrower by taking this directly from their account.
Borrowers can refuse this permission and can also revoke it, even after having previously allowed the lender to collect payment this way.
How Do I Revoke ACH Authorization to My Lender?
When revoking ACH authorization to your lender, you should carry out the following measures:
- Contact the company, telling them you are revoking ACH authorization
- Contact the providers of your account, telling them you have revoked this authorization
- Monitor accounts after revoking authorization to ensure no suspicious activity
- Stop the automatic payments via a “stop payment order”
To revoke the lender’s ACH authorization to your accounts, you should contact them, explaining that you are revoking your permission for the lender to take out automatic payments from your account.
Once this has been revoked, you should then also contact your bank or credit union (wherever the lender has been taking payments out of) telling them that permission for the lender to access this account has been revoked.
If you revoke the lender’s permission for automatic payment, it’s important to note that this will not cancel your loan contract with the lender, meaning you will still owe the lender the full balance that is left on the loan.
How Long Does ACH Authorization Last?
The duration of ACH authorization can depend on the circumstances of the lender and the borrower’s agreement. As previously mentioned, ACH authorization can be asked of the borrower during the loan request process.
However, even if you’ve granted this authorization, you still have the right to revoke this and stop the lender from taking these automatic payments from your account.
Before granting this, it’s important that you understand precisely what authorizing this to the lender will entail and ensure that you can manage their automatic collection of payment before agreeing to this.
What You Should Know About ACH Authorization
Arguably, one of the most important things to understand about ACH authorization is that it gives the lender permission to take funds automatically from your account. Therefore, you’ll need to ensure you have enough in your account to make the loan payment when due.
If there isn’t enough money in the account to make a payment on the date the lender withdraws this, the loan will be classified as delinquent. Once this occurs, the lender may then charge late fees. Your account providers may also charge you an NSF (non-sufficient funds) fee. Find out more on what happens when you can’t pay back your payday loan through our guide on What Happens if I Can’t Repay My Payday Loan?
When agreeing to provide authorization to a lender, it’s important to check you fully understand all the details and requirements that come with this, including:
- When the lender will withdraw money from your account
- The amount of money the lender will withdraw from your account
- Instructions in the loan’s documents that details how to revoke this permission
You should not sign a document for permitting ACH that doesn’t provide clear and concise instructions on how to revoke it.