What exactly is a pre-authorized credit card payment? You may have noticed this reference on your billing statement from your bank, but are not sure what is implied by the term. Simply put, this is an arrangement that sees the customer authorize a bank to debit the user’s account for a regular bill’s full amount. These are pre-arranged deductions that are given to a third party. These are not multiple instances of one-time purchases, but obligations that are owed to third party collectors.
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In order for a pre-authorized payment to be arranged, then a payment schedule would be set by written agreement. The account holder would discuss the arrangement with the third party (via phone or through an online company) and then establish the amount that will be debited from the account. These types of transactions can also be done by electronic funds transfer or a pre authorized check. The payment schedule would also include the precise date that this payment would be made.
Problems with the Bank
Sometimes account holders may become confused when they see such a charge appear on their debit or credit card and have no recollection of making such an agreement. The company may even be a retail store, which under most circumstances, wouldn’t require such a recurring contracted arrangement. Whenever this happens, the usual scenario is that the card holder agreed to make monthly payments for a financed item through a pre-authorized debit plan. There may even be extra fees attached to this arrangement, such as set up fees or other retailer charges.
What sometimes happens is that customers try a new product or service for a limited period of time, a so called “free trial period”, but then decides they doesn’t want to keep the service. The customer cancels the product and voids the contract, as is the right stated in the free trial agreement. Imagine that customer’s surprise when he notices the merchant is still charging the account every month. This usually results in an angry call to customer service!
Should You Contact the Bank or the Merchant?
Whenever this happens the bank will typically refer the customer back to the merchant before pursuing chargeback options. While you may have a right to remove the charges later on, the best way to address the problem is to contact the merchant directly and explain the situation. The unauthorized “authorized” payment may have resulted from a clerical or computer error or perhaps a misunderstanding.
Account holders are advised to write to the merchant and request that the recurring charges be dropped and that all money is returned to the account holder.
If the merchant is unwilling to resolve the matter or if the situation has developed because of a banking error, then your next step would be to notify the bank in writing about any charges that you do not want to pay. Please note that sometimes banks have a different address for disputes than they do for miscellaneous situations or general account questions. The bank must receive notice of an error within 60 days of the bill in question being released. If you do not remember the details of the transaction then request that the bank send proof that you authorized the payment. This proof could be anything from a signature or even a contract with “fine print.”
Important Notes about Closed Accounts
Another situation that might come up is when a bank continues to accept these “unauthorized” preauthorized withdrawals even if you have closed the account. Remember that closing your account does not automatically void these agreed upon charges. You must cancel all of your pre-authorized withdrawal agreements with retailers before closing an account to avoid these types of headaches. Closing an account does not resolve you of responsibility. Any agreement made with a retailer is binding, and it does allow pre-authorized payments to be paid.
Companies that may use pre-authorized payments include insurance companies, utility companies, telephone or Internet services, financing companies, dealerships and other companies that have need for regular withdraws. Recurring payments can also be a means of income, such as in Social Security payments or pension benefits. These recurring payments are processed using the Automated Clearing House system.
You may find it advantageous to have a card with this option attached. You may even have need of a credit card account that has a defense against unauthorized payments being made. This is why it’s important to read your contract and make sure you and the bank are on the same page in these matters. You can use our free credit card finder to compare credit card companies and find the best card today!