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What is Preauthorized Payment? A Comprehensive Legal Overview
Definition & Meaning
A preauthorized payment is an agreement between a bank and a customer that allows the bank to automatically withdraw funds from the customer's account. This arrangement is typically used to pay recurring bills, such as loan payments or utility bills, without requiring the customer to initiate each transaction manually. The agreement specifies the amount to be withdrawn and the scheduled dates for these payments. Checks may also be utilized to facilitate these transactions.
Table of content
Legal Use & context
Preauthorized payments are commonly used in various legal contexts, particularly in financial and consumer law. They are relevant in situations involving:
Loan agreements
Utility and service contracts
Subscription services
Users can often manage these agreements themselves using legal templates from resources like US Legal Forms, which provide forms drafted by attorneys for various financial situations.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Here are a couple of examples of preauthorized payments:
A customer sets up a preauthorized payment with their bank to automatically pay their monthly mortgage, ensuring it is paid on time without manual intervention.
A user authorizes their utility company to withdraw the monthly bill amount directly from their bank account on a specified date each month. (hypothetical example)
State-by-state differences
Examples of state differences (not exhaustive):
State
Key Differences
California
Requires explicit consent for recurring payments.
New York
Allows for automatic payments but mandates clear disclosure of terms.
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
Comparison with related terms
Term
Definition
Key Differences
Direct Debit
An automatic withdrawal from a bank account.
Typically used for recurring payments but may not require a written agreement.
Recurring Payment
Payments made at regular intervals.
Can be manual or automated, while preauthorized payments are specifically automated.
Common misunderstandings
What to do if this term applies to you
If you are considering setting up a preauthorized payment, follow these steps:
Review the terms of the agreement carefully before signing.
Keep track of the payment schedule and amounts to avoid overdrafts.
Consider using legal templates from US Legal Forms to create or review your agreement.
If you have questions or concerns, consult a legal professional for guidance.
Find the legal form that fits your case
Browse our library of 85,000+ state-specific legal templates.