How to cancel a Direct Deposit Instruction

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Direct Deposits is an electronic fund transfers where funds are transferred regularly in a specified period as agreed upon by both parties to the account. Direct deposits are usually set up to pay salaries, taxes, bills, etc. In cases where payments have to be made regularly, it is helpful to set up direct deposit. Direct deposits are an easy and convenient way to process payments, there will be no problem with losing checks and regular visits to the bank can be avoided.

Due to unforeseen situations, there may be a requirement to cancel a direct deposit. In such situations to avoid losing money customers should know how to cancel a direct deposit. Therefore, we have listed the steps below to make it happen –

• To cancel a direct deposit, the payor can contact the financial institute via telephone, branch or online and cancel it by following the procedure as directed.

• If direct deposit cancellation is being done after both parties completed the agreement, then the payor can request the payee to fill a cancellation form and write down the main details such as reference number for the payment, routing number, name of the payee, reason for cancellation etc and then sign it. This paperwork would then be signed and submitted by the payor to the bank and the direct deposit would be canceled.

• In the case where both parties have agreed for cancellation verbally, then the payor can connect the financial institute via telephone banking and online banking to cancel the direct deposit. Usually, via telephone and online banking, the payor who wishes to cancel the payment has to give security information to be verified on the account. Then the payor should give the name of the direct deposit and reference number to ensure that the correct direct deposit is being canceled on the account. Direct deposits can be easily canceled with telephone banking and online banking services too.

• As a direct deposit payment takes up to 3 working days to be processed. The request to cancel the direct deposit should be made prior to the payment debiting the account. It’s better to cancel a direct debit few days prior to it debiting the payor’s account; because once the payment is processed electronically it’s not simple to reverse the funds. However few financial institutions have the facility of reversing the direct deposit on the same day when the payment is processed provided the customers adhere to the time quoted in the disclaimer for cancellation of direct deposits. To have a hassle-free cancellation, it’s always best to cancel it few days prior to the payment debiting the account.

Situations in which cancellation of a direct deposit might be required:

Payee closes bank account: If a person receiving payments in the form of direct deposits chooses to open a new account with another bank by closing the existing one. Then it is necessary for the payee to contact the payer and request a Direct Deposit Cancellation Form where the payer can then apply to stop the payment into the existing checking account. This way the payer can issue a check when the account is closed. Then a new direct deposit can be set up on the new account. By processing the cancellation prior to closing the account, the payee can benefit from obtaining funds through other means. If the payee does not inform the payer before the account is closed, the direct deposit will be processed and the closed bank account will receive the funds. Both payer and payee must contact their respective financial institutions to obtain this amount by setting up a payment trace. This can be annoying and time-consuming. So to avoid any such problems, it always makes sense to cancel direct deposits before closing the account.

Dormant/ Inhibit accounts: If the bank has put a stop on the payee or payor’s account due to any reason for example such as bankruptcy, it’s advisable to cancel direct deposits to avoid the trouble of tracing funds. Usually, if the payor has a stop on the account the direct deposit may not debit the account, however, it’s sensible for the payor to inform the payee that they won’t receive the funds. In case where bank accounts are not being used regularly there might be a dormant marker placed on the account, in such cases the parties should contact the financial institution and request to remove the dormant marker on the account as only then the direct deposit can be processed successfully.

Fraud investigation: Some times financial institutes block the accounts if they come across any fraudulent activities on the account, in such cases the payee should inform the payor to stop the direct deposits as there is a possibility of some fraud happening on the payee account and the it’s sensible to cancel the direct deposits as there would be a risk of losing the funds.

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Agreement comes to an end: Usually direct deposits are set up when both parties are in an agreement to pay and receive the funds. If due to any reason the agreement comes to an end. The parties should follow the procedure of canceling the funds to avoid losing additional funds with the direct deposit being active on the account.

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Cancellation Vs transferring direct deposits

If the payee (receiving direct deposit funds) wishes to receive the direct deposit to another checking account, the payee must contact the payer and inform them of this. The payer will then receive a direct deposit transfer form which must be filled in by both parties and sent to the respective financial institutions. It may take a certain amount of time for the payer’s bank to transfer the direct deposit to the new checking or savings account of the payee. Therefore the payer and payee must obtain the lead time from the respective financial institutions to arrange for another payment method if the transfer takes too long to become active. In some cases, it may be faster to cancel and create a new direct deposit on the account. So both parties have to check the duration and convenience while direct deposit transfer, only it can be picked faster otherwise it can always be canceled and prepared too.

Few essential points are listed below to help customers deal with direct deposits easily:

• When there is an agreement between the payor and the payee a direct deposit form is filled out and signed by both parties. The payor’s bank and payee (receiver of the credit) both send the paperwork to each other, when the details are confirmed and agreed a direct deposit is set up. This procedure can take up to 45 days or 2 months. Until the direct deposit is set up on the account the payee won’t receive the funds. Hence the payee and the payor should make other arrangements to transfer funds until the direct deposit is set up.

• The payee can always expect the direct deposit to reach the date as agreed in the agreement, however, sometimes it can be 2 or 3 days different. Because direct deposits are only processed on working days electronically. If there is a Saturday or Sunday after the payment debiting date then the receiver may have to wait additional 2 or 3 days to receive the funds.

• If in case there are bank holidays or the bank is closed due to some reasons, then the direct deposit might appear 2 or 3 days after the holidays. Electronic payments would be processed during working days only. Hence the customers can always expect to see a direct deposit credit on a working day itself.

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