Today, I have a story about three small letters which caused a world of financial pain for me in the summer of 2006. Those letters were ACH, standing for Automated Clearing House. These were electronic funds transfers (EFT’s), which are fairly common nowadays. It’s basically an easy way to transfer money from one bank account to another, usually as a means to pay bills.

Over the course of six days in early June, these EFT’s stripped me of nearly $1,000 without any notification or permission from me. Four withdrawals of more than $200 were made day after day from my checking account. Here’s the worst part about the whole situation: My bank was powerless to stop it.

So how did this happen? The previous year, my wife and I signed up at a Tae Kwon Do center. After enjoying it for several months, we signed a two-year contract which allowed us to progress towards black belts. We had formed a friendly relationship with the management there, and almost felt as if this place was our family. While signing the contract, we were told “It’s no problem if you move or lose your job”, in reference to the fact that the contract could be adjusted.

After six months on the contract, our financial situation changed and we were no longer able to afford the $200 per month that was charged to us. We sent a letter informing the center of this, expecting that they would cancel the remainder of our contract.

Of course, that didn’t happen. Instead we were told we were in a binding contract with their financial company, and that while they would cancel the contract if they could, they could instead only suspend it. So we were then told that the contract was suspended indefinitely.

Four months later, I noticed a charge from the Tae Kwon Do center. I emailed to inquire about it, and about a week later was told it was a mistake and that it would be addressed. A week after that, I was charged another $200. The day after, $200 more. The next day nothing, and then the following day another $200. And another $200.

More than $1000 had been taken from my account in less than a week. My bank, PNC Bank of Conshohocken, Pennsylvania, did not seem to mind these withdrawals, as I wasn’t notified. I am very lucky to be somewhat addicted to Quicken, or I may have not noticed these withdrawals either. So I brought in the letter I had received stating that the charges would be suspended indefinitely (this was from several months ago), and PNC Bank said they could do nothing.

In the end, I had to close my account, and face bounced check charges from the federal, state, and local tax authorities as this was June 15th and I had just sent my estimated tax payments. There’s another eight months to the story, and not much of it is relevant to this blog, but I will say that thanks to the excellent skills of my father, a lawyer, I finally received a check back for all the money that was taken, and had official confirmation that the contract had been cancelled.

I hope that, if anything, this story can serve as a reminder to think twice, then three times, before you sign any type of contract. This especially applies to health clubs and martial arts centers, as they are notorious for this. When you sign that single line that gives a financial company permission to withdraw funds from your account, you are essentially giving them free reign. Yes, had I went to court against them I probably could have won, but I can’t imagine the money and time that would have required.

If possible, use either credit card payment options, written checks, or even cash. Avoid ACH transactions at all costs!