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We engaged in business with another company that provides credit card processing service. At the time of signing up for their service we authorized them to use ACH by giving them a void check (a common practice).

However, relationship went sour with this company; once we sent them Termination Notice they illegally charged us Early Termination Fee (~$840). We asked our bank to reverse this transaction and thankfully, our bank was able to reverse it and we got our money back. However, the bank below in the letter mentioned:

A permanent stop payment can't be placed because there is an agreement and/or contractual obligation between you and the merchant.

Question: What are our options here to ensure that this company can't retry to take our money again via ACH?

Some ideas that come into my mind (though I am not sure what and why would or would not work):

  1. Close existing account and create a new one that has different account number?
  2. As a temporary solution keep ~$0 balance in the account so that their request for $840 can't be fulfilled? However, would our bank incur any fees because of insufficient funds each time the other company tries to charge us again?
  3. Provide to our bank the service termination notice that proves that we are not in business with the other company anymore and effectively block them. However, termination notice has only our signature.
  • Once you cancelled, the company is technically not allowed to use it anymore. But if they do, it ends up being your problem to run after them and your money. – Aganju Dec 25 '15 at 23:29
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I had a similar situation a while ago, and here's what I learned:

What are our options here to ensure that this company can't retry to take our money again via ACH?

Close existing account and create a new one that has different account number?

Yes.

As a temporary solution keep ~$0 balance in the account so that their request for $840 can't be fulfilled? However, would our bank incur any fees because of insufficient funds each time the other company tries to charge us again?

Bad idea. You may incur penalties for returned payment, or the bank may honor the payment and charge you overdraft fees.

Provide to our bank the service termination notice that proves that we are not in business with the other company anymore and effectively block them. However, termination notice has only our signature

Bank doesn't care. ACH withdrawal is akin to a check. The assumption is that the other side has entitlement. You can put stop payment once its processed and try to reverse it claiming fraud, but the end result will be #1: you'll end up getting a new account set up, while they try to recover the money.

This is one of the reasons I'm reluctant allowing standing ACH authorizations any more. Generally, the American banking system is very much geared against the consumers, and in many ways is very retarded. In a more advanced countries (which is almost any other country than the US), the standing withdrawal authorization goes through your bank and can be revoked.

  • Closing the account does not protect you from further ACH (and associated overdraft fees). As those are like checks, that would mean you could simply skip all pending checks you mailed out by closing your account... – Aganju Dec 25 '15 at 23:30
  • @Aganju not exactly. When the check bounces for insufficient funds/closed account - the person you gave the check to has a physical paper that says you agreed to pay. In the case above, there's no such security, only a contract. The payee will have to sue to get a collection judgement. Automatic withdrawals from a closed account are the bank's problem. Checks that go in collection - are yours. – littleadv Dec 25 '15 at 23:40
  • I wish that were completely true, but when you close the account, you will be informed that the bank will honor any incoming checks (which includes ACH) for a defined amount of time (30 or 90 days, depending on the bank), and you are responsible for not having any or the cost. An ACH is a blank signature for many checks, so you did sign it. – Aganju Dec 25 '15 at 23:43
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    @Aganju again, I respectfully disagree. That is what I got from the bank when I was in a similar situation, the solution of closing and reopening the account was the solution the bank suggested. – littleadv Dec 25 '15 at 23:46
  • In any case, if they honor it, you claim fraud and let them deal with it. Since the money in question is their and not yours they'll be much more eager to figure it out quickly. – littleadv Dec 25 '15 at 23:47

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