It’s usually best to avoid automated payments.

More and more people are giving their vendors the right to make automatic deductions from their checking accounts or make recurring charges to their credit cards. Except in a very few cases, we recommend against this procedure (sometimes you have no choice) because we have found that it is so hard to stop the payments, and even harder to get your money back once a payment has been made.

Because vendors are reluctant to give up the stream of payments that come with automatic debits, “they will make it as difficult as possible,” says Elizabeth Warren, a law professor at Harvard (quoted in the Wall Street Journal – 2/22/06).

Recently AOL paid $25 million to settle a class action lawsuit against it for failing to allow its customers to cancel their service.

If you do have automatic payments and you want to cancel them, you have to follow the rules. There is federal law that can help.

If your payment is being deducted from your checking account, all you have to do is notify the bank (it’s best to do this is writing, especially by certified mail, return receipt requested) that you want the payments to stop. This must be done at least three days before the next payment is deducted.

You do not have to inform the company getting the money, although I advise sending them a copy of your letter.

If you have a recurring charge to your credit card, you must get the vendor to stop making the deduction. The credit card company will not stop the vendor from making the charge, no matter what you tell them. Use certified mail.

If the vendor ignores you (as AOL was prone to do) then your only recourse is to challenge each charge with your credit card company after it is made, within 60 days after you get the bill. Again, this must be done in writing. DO NOT DO IT OVER THE PHONE.

The instructions for how to challenge an item on your credit card appear on the back of your credit card bill. Follow them exactly. Include a copy of the certified letter that you sent to the vendor cancelling the charge. Federal law requires that the bank investigate your complaint within thirty days and respond to you as to their decision.

In most cases this will result in that charge being removed. But you will have to repeat the procedure when the next bill arrives, unless the vendor finally stops making the charge.

If you are having automatic deductions from your checking account with a debit card, you do not have the same protection under the law.

The best thing to do with a debit card is to work both ends. First, send a cancellation notice to the vendor, certified mail, and then enclose a copy of that in a certified letter to the bank that issued the debit card telling them to stop allowing those deductions.

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