If you discover an error or an unauthorized charge on your payday loan account, it is important to act quickly. Federal law provides you with specific rights to dispute billing errors, and lenders are required to follow a formal investigation process. Taking the correct steps can help resolve the issue, protect your credit, and ensure you are not held liable for charges you did not authorize.
Your Rights Under Federal Law: The Electronic Fund Transfer Act and Regulation E
Most payday loans involve electronic fund transfers (EFTs) for disbursement and repayment, such as an automatic debit from your checking account. These transactions are protected by the Electronic Fund Transfer Act (EFTA), implemented by Regulation E. This law outlines your rights and the lender's obligations when you report an error or unauthorized transfer.
An "error" can include an unauthorized electronic withdrawal, an incorrect amount withdrawn, a missing payment you made, or a computational mistake. The law requires you to report these issues within specific timeframes to limit your liability.
Step-by-Step Process to Dispute a Charge
Follow this structured process to ensure your dispute is handled properly.
1. Document the Error
Gather all relevant information. This includes:
- The exact date and amount of the disputed transaction.
- Your payday loan account number and agreement.
- Your bank or credit union statement showing the debit.
- Any receipts, confirmation numbers, or correspondence related to the loan.
2. Notify Your Financial Institution and the Lender
You should contact both parties as soon as you find the error.
- Contact Your Bank/Credit Union: Inform them of the unauthorized or incorrect debit. They can often initiate a stop payment on future withdrawals and may reverse the charge while an investigation is pending. This is crucial to prevent further automatic withdrawals.
- Contact the Payday Lender: Call their customer service and follow up in writing. Clearly state that you are disputing an error under Regulation E. Provide your account details and a description of the problem.
3. Submit a Written Dispute (Required for Formal Investigation)
To trigger the formal legal investigation process, you must send a written notice to the lender. While you can call first, a written notice is essential. The Consumer Financial Protection Bureau (CFPB) recommends sending it via certified mail with a return receipt for proof. Your letter should include:
- Your name and account number.
- A statement that you are disputing an error and request an investigation.
- The type, date, and amount of the error.
- The reason you believe it is an error.
You generally must send this written notice within 60 days of the statement date on which the error first appeared. The lender then has specific obligations under the law.
4. Understand the Lender's Investigation Timeline
Upon receiving your written error notice, the lender must:
- Acknowledge your complaint in writing within 10 business days.
- Complete its investigation within 10 business days of receipt (this can be extended to 45 days in certain circumstances, but they must typically provisionally credit your account within 10 business days for EFT errors).
- Report its findings to you in writing. If an error occurred, they must correct it promptly. If not, they must provide a written explanation and let you know they have re-debited your account if a provisional credit was given.
What to Do If the Dispute is Not Resolved
If you are dissatisfied with the lender's resolution or believe they have violated the law, you have recourse options:
- File a Complaint with the CFPB: The Consumer Financial Protection Bureau supervises payday lenders and accepts consumer complaints. They will forward your complaint to the company and work to get a response. You can submit a complaint online at consumerfinance.gov/complaint.
- Contact Your State Attorney General or Financial Regulator: Payday lending is also regulated at the state level. Your state's attorney general's office or department of financial institutions may assist.
- Consult an Attorney: For significant unauthorized charges or if a lender fails to follow Regulation E procedures, you may wish to seek legal advice.
Protecting Yourself and Considering Alternatives
Disputing charges can be stressful. To protect yourself in the future:
- Keep meticulous records of all loan agreements and transactions.
- Monitor your bank account closely around due dates.
- Know that repeatedly disputing legitimate charges or stopping payments can default your loan, leading to collections and credit reporting.
If you are struggling with repayment, consider reaching out to the lender about a payment plan or seeking assistance from a non-profit credit counseling agency. Exploring alternatives like a small loan from a credit union or local emergency assistance programs can help avoid the high costs and potential pitfalls associated with payday loan cycles.