ACH Authorization, which stands for Automated Clearing House Authorization, is a payment authorization that gives the lender permission to electronically take money from your bank, credit union, or prepaid card account when a payment is due.
Consumers usually are asked to provide the payment authorization as part of the process of getting the loan, and the terms of the authorization will usually be inside your loan documents. This kind of repayment process is common for products that have recurring payments such as installment loans, title loans and mortgages.
Once you approve the authorization, your lender will take your payments directly from your account without any further action by you, but rest assured, you can take steps to refuse the authorization if necessary.
What are the main types of ACH payments?
There are two main types of ACH payment;
- Direct deposits
- Direct payments
Direct deposits may include payroll, expense reimbursement, government benefits, taxes, interest payments and more.
Direct payments represent the use of funds to make payments by either an organization or individual, such as loan repayments.
ACH offers major benefits for businesses who take payments on a regular basis. It can be expensive to run payments through a card network, and ACH payments are typically much cheaper than other methods of electronically transferring funds and they offer very secure payment methods for lenders.
One positive of ACH payments is that they do not expire, as the bank account itself is the source of funds. ACH payments are also open to anybody with a US bank account – businesses and consumers alike.
However, one downside of ACH payments is that they tend to take longer than wire transfers. Wire transfers are processed in real time and can be completed within a day, whereas ACH payments may take several business days to settle.
On the other hand, a wire transfer comes at a cost of $25 per transaction on average, while an ACH payment costs a median of $0.29 per transaction. Unless a quick turnaround is essential, an ACH payment is usually going to be the better option.
How can you stop an ACH payment?
In a nutshell, yes, you are able to cancel ACH payments, as long as you request to do so three business days in advance of your scheduled payment.
Because they take a few days to settle, you do have a bit of extra time to stop payment on ACH transactions if necessary, however, the rules on these payments may differ depending on your bank. Some banks will be able to cancel an ACH payment over the phone or online, others may require you to submit a form requesting the cancellation.
To cancel a recurring ACH payment, you’ll need to first contact the company you’re paying and inform them that you’re revoking their access to your account, which you can do over the phone.
You’ll then need to contact your bank that you’re making the payment through and inform them that you’ve revoked authorization from the company. You may be able to do so over the phone, or you may be asked to write a stop ACH payment letter or complete a form.
In some cases, you can submit a stop payment order directly to the bank even before you’ve formally revoked permission from the company. A stop payment order instructs the bank to prevent the automated transaction from taking place until you’ve formally cancelled the arrangement.
However, there may be a fee to use a stop payment order, and the form must be submitted at least three business days before payment is scheduled.