Tuesday, February 9, 2010

The Dangers of Automatic Bank Account Withdrawals

Many people like the convenience of paying bills with automatic withdrawals from their bank accounts. Having all your utility bills and other regular payments paid automatically is definitely a time-saver as long as no mistakes are made.

I don’t like the lack of control that comes with automatic withdrawals from my bank account. I avoid them as much as possible. Past experiences where I had to beg a business to stop taking money they had no business taking made an impression.

In these situations I found my bank to be of little help. Although it may not be a bank’s official policy, I’ve been told that they will give any reputable business money from my bank account if the business asks for it. Banks have made it clear to me in the past that the best way to deal with problems is to work them out with the business making the withdrawals.

My wife is caught in a saga of improper withdrawals right now. My son wanted to use a Goodlife Fitness gym this past summer. She and I approved of an activity that didn’t involve playing video games, and she set about arranging to pay for a membership for the summer.

Strangely, Goodlife didn’t seem able to accept a full payment for the summer months. My wife tried several things, but they were adamant that the only way to pay was by automatic bank account withdrawal each month. She was told that my son could cancel his membership at the end of the summer without penalty.

With some uneasiness, my wife agreed to this arrangement. However, after my son cancelled the membership at the end of the summer, the predictable happened: the automatic withdrawals continued. We have now paid for an additional four months.

After some effort, we now have a promise from Goodlife that the withdrawals will stop, but no word yet on getting our money back. Our confidence that the withdrawals will actually stop is not tremendously high. We’ll have to wait and see.

Even if we are ultimately able to straighten all this out and get our money back, we’ve still lost because of the aggravation and time spent. This experience has strengthened my resolve to avoid automatic bank account withdrawals in the future.

17 comments:

  1. I'd tell my bank that they could stop the payments or I would move my business to another bank. This was the way I was able to negotiate banking fees lower.

    I am sure my fee situation would have been essentially the same at any bank, but in the case of pre-authorized payments, changing banks would actually work.

    Brinkmanship sadly seems to be the only negotiating tactic that works with banks.

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  2. Jeff: Things haven't become bad enough to make the big jump to a new bank, but if they do, I'll keep it in mind. I remember someone claiming years ago that he closed an account to get away from some automatic withdrawals, and the bank started pulling the money from one of his other accounts. I'm not sure if I believe this or not, but it seems like it might be possible. If this is the way things work then it would be necessary to close everything at my current bank.

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  3. Fitness clubs are notorious for automatic bank withdrawals. You may want to check out Ellen Roseman's website for all the horror stories involving these parasites. Here's one:

    http://www.ellenroseman.com/?p=67

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  4. CC: Wow! The number of people with essentially the same problem with fitness clubs is incredible.

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  5. When I had this problem with Vonage, I raised a complaint thru the BBB's online complaint system. I sent a copy of BBB's confirmation email to Vonange and suddenly they couldn't get my account closed soon enough.

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  6. Anonymous: That's good idea. If the latest promise to stop the withdrawals is broken, I think I'll try the BBB route. Thanks for the suggestion.

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  7. Michael: moving my chequing account that might not motivate them but my RRSP account would.

    I have a few friends with similar stories from other clubs, both in Canada and the USA.

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  8. Would you have better recourse if the automatic payments had been made through a credit card rather than from a bank account?

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  9. Ace: I'm not sure if it would have been better with a credit card, but it certainly would have been better to have pre-paid three months with cash. This is what we wanted to do.

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  10. There are typically more legal protections on credit card payments. Most particularly, they offer insurance for payments for services that are not rendered (for instance, buying an airline ticket on a credit card, and then having the airline go out of business). So as long as there was some paperwork showing that the membership was cancelled, the bank becomes on the hook for the money, and has a much greater incentive to punish dishonest businesses.

    I use auto-payments for things I expect to be ongoing. Utilities, loan payments, condo fees (or, a few years ago, rent), and if the company will take a credit card, I'd rather use that than the bank account. Services with an expected end-date that is not spelled out in the contract don't get automated access to my accounts.

    The worst I've gotten was a completely unreasonable electricity bill that effectively precharged me 4 months of power based on a completely bs "estimated reading" (aka the dartboard method). The hassle of reducing that payment would have been the same no matter what the method of payment, and after an hour on the phone, they ended up only withdrawing slightly more than my usual payment.

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  11. Neil: If I get forced to automate payments in the future, I'll consider going the credit card route.

    I remember having battles with utility companies and their "estimates". In all the years they made their estimates, I don't ever remember any underestimates. It wasn't unusual to be asked to pay more than double the actual usage.

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  12. I had the same problem with Goodlife fitness, but managed to get it taken care of with them only taking two months of payments after cancellation. I took the cancelation paperwork that showed the date of the last authorized payment to the branch and the branch manager blocked further pre-auth payments to Goodlife. Getting a cheque mailed from Goodlife refunding the incorrectly billed charges took several weeks of calling every few days until they understood it was cheaper to refund the payments than to keep dealing with me.

    Good luck.

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  13. Jeff: Hmmm. Your story adds to my growing list of people with similar experiences. This is starting to feel like a business strategy more than simple mistakes. But, It's hard to tell either way. It's good to know that it may be possible to block payments by talking to my bank if that becomes necessary.

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  14. In an effort to google a bank that does not allow auto withdrawal for my aging mother, I ran across this blog. With the "aging" population, you'd think there would be a bank somewhere that would offer "senior-proof" checking. So far nothing. She has had to close her account 6 times in the past 2 years.

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  15. Anonymous: I'm not sure what you mean by "senior-proof chequing". I can believe that seniors have some unique needs, but I'd like to hear your ideas of what these needs are.

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  16. The banks (my bank at least) will not touch the issue as you entered a contract with the vendor. My bank says I have to deal with the vendor which is taking $17.50 a month. They suggested a stop payment from the bank at $30 per instance and a call to the BBB. How the bank considers charging me twice the amount being withdrawn helpful is beyond me. My feeling is it's more of parasitic opportunity for them.

    Banks will dip into your other accounts - be warned - esp if your checking is linked to your savings for overdraft protection.

    I despise automatic withdrawals but when it comes to things like a mortgage you often don't have a choice.

    The suggestions on putting the cancellation request in writing are bang on. Keep copies and forward them to the bank, vendor and BBB.

    Personally I now run two accounts with my savings being in a different bank altogether.

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  17. I understand your frustration but reading the fine print on the back of a contract is just as important

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