Can I avoid a bill payment by canceling my bank account?
Reader “Justin” asks the following question via email:
Hey. I was wondering if you knew anything about automatic debits, particularly, if I decide to just close my checking account without opening a new one (and then run off to join the French Foreign Legion). Will the old checking account remain closed and will I effectively leave those auto bloodsuckers in the lurch? This is hypothetical of coarse.
I’ve thought about this same act, but more from the perspective of how my credit history would get screwed over by collections agencies chasing after me for payment.
You see, there’s three things that could happen by closing your bank account when there are auto-debits set up against it:
1. The bills becomes late then eventually goes to a collections agency. If it’s a utility bill, you can expect your utility to be cut off, and if you continue to not pay, they’ll send your account to collections and it WILL damage your credit history accordingly (I’m simplifying this a bit, but it really depends on the debits you’re talking about).
2. Your bank reopens the account, pays the bill and charges you overdraft fees. Seriously, it’s not a joke that some bank accounts will never just die. If you’re going to close an account, make sure to talk to a manager about what happens when a charge comes in after it’s closed, and try to get something in writing to cover your butt. If you don’t believe me, you should probably start reading The Consumerist.
3. Nothing happens/charge is rejected. What SHOULD happen is the bank rejects the charge and the vendor notifies you of missed payment AND you are a responsible adult and pay the bill. However, if it’s a fraudulent charge that won’t go away, your only choice may just be to close the account and hope it goes away.
Finally, if you do want a bank that’s not going to jack you in a situation like the one “Justin” is describing, consider opening up an account at USAA. They have really first rate customer service ratings and competitive rates of interest. Deposits are super easy, they return overpayments to their customers and when you call their hotlines, its much easier to reach a real person, not a recording.
For more on keeping up with your credit report and making sure your credit isn’t destroyed, check out these additional articles.
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Are you sure your bank would even close the account? Here in France, they cannot close the account if an automatic debit is scheduled. You have to cancel the automatic debit first, then close the account.
This is good to know, good to know. It’s almost easier to pay the debt off but supposing you couldn’t then canceling the automatic debits first is the rational thing to do if closing a checking account is what you want to do. And then voila! One way ticket Aubagne.
Ok, banker here. Please allow me to shed some light.
When you close your account, the individual helping you should be asking questions about the automatic debits because, yes, if you try to be sneaky and close your accounts to avoid paying a bill, we’re not going to help in that endeavor – particularly if it was preauthorized BEFORE you closed your accounts. If it was something that tried to come AFTER an account was closed – like a check – then it is rejected. But automatic debits are preauthorized, and we will pay them and you are charged.
Now, if this is a fraudulent charge and you’ve contacted the company that keeps billing you to no avail, that’s a whole other situation. You have recourse and your bank can help you. You simply fill out the dispute paperwork for the charge, the bank issues a provisional credit in the amount you are disputing, and then the bank investigates the matter. Nine times out of ten, the bank just goes with the fact that the merchant isn’t supposed to be charging you and they block the transactions from coming in. They may even freeze the old account and move you to a new one, depending on what was compromised – your account number or your debit card number. But, if the merchant sends back a signed contract by yourself allowing them to debit the account, then you are liable for that and any provisional credit is reversed.
Just out of curiosity, why do you suppose it is the financial institution’s responsibility to reject an automatic debit that you have preauthorized just because you don’t want to pay them and have closed the account? Perhaps people need to consider their own personal responsibility and not put the blame on the banks for that, because let’s be honest, you’re doing something you shouldn’t be doing anyway.
Interesting question, though. Perhaps I’ll write a post about this and link back. I think it garners some great discussion.
I’m curious about this as well – Dave Ramsey advises folks all the time to never allow a debt collector to have electronic access to checking accounts, and even tells those who have provided that information to the collectors to revoke (in writing) the collector’s authorization to automatically withdraw repayments. Would that ‘revoking’ be considered legit from the bank’s perspective if the collector ignored it and continued to withdraw funds? Because DR ALSO recommends closing accounts that have been compromised in this way…
As I said – I’m curious!
The bill doesn’t magically go away anyway. They can still ruin your credit.
And sometimes they will reopen your account and pay a charge even if you DIDN’T authorize it at all…then send you to collections. (That happened to me.)
At any rate, the short answer is that no, you can’t get out of paying.
@ Michelle – Absolutely that counts as legit in the banks eyes. It is now a disputable item. Keep a copy of the letter and take it to the bank when disputing it. The account will most likely be frozen so nothing goes in or out and you will be given a new account number.
I need help, my gym closed down without any notice yesterday and they are deducting the money from my account. I have a year contract that will be up in July. How can i close my account and not have it affect my credit because this is no fault of my own? The gym is not honoring any other contracts anywhere and personally they could care less as long as they still get my money.
Kristen, I’m not an expert in law or much of anything else, but if they’re not accepting your contract but making you pay, then that sounds illegal and grounds for small claims court. I don’t know the full details of your plight, but bring up the matter of the legality of not accepting your contract, and perhaps they’ll cancel it and refund money?
im with td bank what happens if i write an echeck to full tilt poker then close my account before they deduct money from my account.
What if your account is open and you go to a check cashing place then before it’s due close the account because you don’t have the funds……