Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Jul 18, 2021

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While a simple phone call or visit to a bank or credit union is usually all it takes to close a bank account, doing so in order to avoid collections on a payday loan can result in some heavy consequences.

Once a lender discovers that a borrower has closed their bank account they will probably take quick action.

When customers borrow a payday loan, they used to leave a personal check with their financer. While some still do with physical lending locations, it’s now more common for borrowers to give online lenders permission to debit money directly from their checking account. If an account is closed, the financer may try to cash a borrower’s check or debit money from the account electronically. This could cost the borrower overdraft fees or processing fees for the closed account.

If undertaking any of these actions doesn’t work, the lender can begin collection activities. Collection agencies typically use incessant phone calls to try to contact their targets. It is also possible they will try to sue borrowers in court.

In order to avoid facing collection agencies—or even having to close a bank account in the first place—borrowers should try to negotiate with their lender. Explaining to their lender why they can’t pay back a payday loan might grant borrowers some mercy. It’s always possible a payday loan store manager could grant a borrower a deferment period or an installment plan for repaying the loan.

Due to these reasons, closing a bank fund should not be a decision made quickly. In fact, opening another bank account can be difficult once a borrower closes a previous account since some banks refuse to open accounts for customers that owe money to another bank.  If a payday financer has withdrawn so much money that a borrower has a negative balance, then a bank may even refuse to close the account until the balance is paid off.

In lieu of closing an account, borrowers can instead place a freeze on their account. A frozen account will accept deposits, such as paychecks, but will not permit any withdrawals. As a result, payday lenders will be unable to withdraw funds from a frozen account.

Borrowers could also put a “hard block” against a particular payday loan financer. Similar to freezing a fund, a “hard block” bars a specific business from making electronic withdrawals. In order to do this, a written letter is required to be sent to the lender informing them that they no longer have permission to make withdrawals. Naturally, this will upset financers who may charge a punitive fee for trying to block their withdrawal attempts. Additionally, banks may charge fees per each requested “hard block.”