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Pitfalls of Automated Bill Payment
theodp writes "A few months ago, the NY Times' Ron Lieber extolled the virtues of allowing utilities, phone, and credit card companies to pull whatever you owe from your bank account. Big mistake. Lieber's readers fired back, telling him he was out of his mind for suggesting that they give billers unfettered access to their credit cards and bank accounts. Now Lieber goes through five of the glitches that can occur with any of the various methods of setting up automatic payments: 'You can give each biller permission to pull the full amount from your bank account. You can use the online bill system at your bank to push payments out automatically each month. Or you can charge every bill to your credit card and give only that card company permission to pull money from your bank account when the credit card bill is due. Each of these methods has its potential shortcomings ...'" What kind of payment automation do you use, and why?
There's plenty of credit card details that can be bought for $20 on the internet. Problem solved!
The Mothership
http://www.paytrust.com/
Most of my bills are transmitted electronically. The rest are mailed to Paytrust's P.O. box, and they post the scanned PDF for my review.
I set the payment rules via their website: pay full amount, pay full amount up to [limit], pay specified amount. Or I can just wait for the notification in my email and pay it myself with a few bill clicks.
But none of them are automatic withdrawals. Every month I take the time to go to the website of the biller in question, and tell them exactly what I want to pay. That way if there's a mistake, It's my mistake. I also have a specific checking account I use for online payments. I only transfer enough to pay what I said I'd pay and not a dime more. Just as a layer of insulation between my checking account and my bill account.
Enjoy Every Sandwich
End of story. Why give them the access when it takes 10 minutes to simply do it myself?
Every time I log in to any online payable account, they neg me to set up automatic bill payments. But personally, it's worth the half-hour to an hour of my time -once a month- to fill out an online form. Why would I give anyone unfettered access to my money? What if I have some sort of emergency crop up? I have heard numerous times from co-workers how the automatic deduction will roll out way too early (three weeks ahead of schedule at one point), causing overdraft fees that are entirely the deductor's fault. If they fuck up, the corporate machine would take months if not years to settle any kind of litigation in the event that their customer service department does not agree with my claims. I'll do the one-time payments, thanks. I figure it's worth the hour to control when and where I disperse my money.
Perception is the thin dividing line between reality and fiction.
Over here (the netherlands) lots of people use direct debit. It's safe and convenient and it doesn't give anyone unlimited access to anything. If you give permission for a regular direct debit to a company you can at any time cancel this with your bank, you can also undo an automatic withdrawal (within a timeframe of 2 weeks after the withdrawal iirc), no questions asked.
Also, people rarely use creditcards here, everyone uses direct debit cards, which are secured with a PIN code. Cheques are not used any more. If you need to transfer some money to someone you usually transfer it directly from your account to theirs.
This has been common practice in Germany for as long as I remember (or live). If you do notice an illegitimate transfer, you can tell the bank to undo it, at which point it is up to the company again to bug you about the money. I think all in all, it's less hassle to just check whether all deductions are legit than to manually transfer money to your billers.
I had to CLOSE a bank account to keep Verizon out of it. They first drew more then I owed them from it, then after I told them I wanted paper bills that I would pay myself(they also tried to charge me for the bills), and to not auto-pay anymore, they promptly attempted to draw the same amount, found they had no access to it and charged me an insufficient funds charge. I believe that was entirely intentional.
That was enough for me. Nobody has access to any of my accounts but myself. Not even my wife. That way when I have a charge to my account, I can ask to see my signature on something specifically authorizing it. No signature? Not my problem.
The hassle of dealing with idiots like that FAR outweighs the convenience of auto-pay.
I live in Canada and pay all of my bills through my bank's web site. As much as people like to rail about the lack of competition in Canada due to the fact that there are only five chartered banks for the entire country (other than credit unions, but they are provincially regulated), all five of the chartered banks offer sophisticated on-line banking (some more sophisticated than others). Hell, I even paid my property tax to the City of Calgary on-line. There is no futzing around with the biller in question and arranging electronic payments, you simply add them to your payee list on your bank's website.
Now, I could set up automatic bill payments, but I had a bad experience with the Royal Bank and a student loan; that isn't going to happen again.
You might want to talk to your bank about their policy on overdrafts. I found out, the hard way, that when my checking account had insufficient funds to cover a check I had written, they just took the money from another account I had with the bank. They had never asked me for permission to do that.
The cause of the problem was a data entry error by the person who reads the amount of the check and prints it on the check with a MICR printer. They got the numbers right but moved the decimal point one place to the right. From there on, everything operated on automatic pilot, with no human intervention until I received my bank statement and spotted the problem. The bank's attitude was that the most efficient way of doing business was to automate all processing and decision-making, fixing any problems after the fact, if a customer complained. I closed all my accounts with that bank, which is now part of Bank of America.
Mea navis aericumbens anguillis abundat
I pay my bills online every month. That way I know exactly what I am paying. It's not that hard. The automatic payment thing is scary to me, because it takes control out of my hands. The only bill I pay automatically is my gym membership, because they wouldn't have it any other way. But at least that bill is the same every month.
I'd hate to pay my power bill automatically because it would have been a total surprise to me last month when it jumped from $50 to $160.
None, for several reasons.
1) Billing errors occur. Don't allow them to take your money until you've verified the bill is correct. Otherwise, even if they correct the bill, you will never, ever get a refund.
2) Balance errors occur. Most banks will slap you for a $30-$40 NSF fee if someone sends an ACH debit transaction that's in excess of your available funds, whether or not they actually pay the ACH. Further, many banks play games about how fast they credit ACH deposits (like your direct deposited paycheck), or regular deposits (like your paper paycheck), in an effort to increase the likelihood you'll have an overdraft. What's more, when you swipe your debit card at a merchant, they can place a hold on your funds even if the final charge isn't anywhere close to the actual transaction amount. (Example: Buy $20 in gas at your local pump and find they "authorized" your card for $75. The bank holds the $75 for anywhere from 3 to 30 days. If you try to spend any of the $55 difference, they slap you with an overdraft fee because the funds were not "available," even though they're still "yours.")
3) Emergencies occur. If I need to take my kid to the ER and shell a large amount of money so that he'll have an eye tomorrow, I shouldn't have to call the electric company to get them to stop the payment so I can do it.
Most banks allow online bill payment, and many don't even charge a fee to use it. The good ones will even present my remembered vendors in a list, and allow me to simply enter the amount I want to pay, the date I want to pay, and click "send." Automatic payment benefits only the vendors and the banks, never the customer. I do not exist for a company's benefit; they exist for mine. Just because they prefer to swipe my account on the due date doesn't mean it's to my benefit to let them. They can take a paper check (or a CheckFree deposit) when I'm damned well good and ready to send it to them, and not a day before.
Remove the caps and hold to a mirror.
When I moved into my last apartment I decided to do the auto bill pay. I'm just lazy with paying things and sometimes I'll forget to pay something.
Well, for those of you that pay a gas bill, you know they bill you an "estimated" rate, and then the actual the next month. Well, for a small apartment who's gas bill was maybe $20 for a month, they decided to take out a $320 "estimated" payment. They had no idea why it was so out of whack with the actual, but it was what it was. Normally you just send in an "estimated" payment as well, they just readjust your bill, and send you the actual the next month. Well, with the automatic payment, the bill said $320, and that's what they took.
It ended up just being that I told them to keep $320, and I just wasn't going to pay my bill for like 18 months. Which was fine with them. But they never actually fixed the estimation. The next bill, I had a $300 credit, following I owed $300, next month I had a $280 credit, etc. etc.
Long story short, you don't know what these people are going to charge you with. They take money first, and then just deal with you later if you don't like it. I'd rather pay a late fee, than deal with a CSR rep on why they took too much money.
My favorite part, if you've RTFA to the very end, is this:
UPDATE In last weeks column on socially responsible investing, I mentioned an exchange-traded fund called the HealthShares Emerging Cancer Fund. What I failed to notice, because the company hadnt bothered informing potential investors on the funds own home page, was that the day before my deadline the company announced it was shutting down the fund in September.
Now here is someone you should definitely listen to.
I use my own bank's bill-pay system, because they take all responsibility. If it says a check is to be to my electric company by the 15th and it isn't, THE BANK calls the electric company and explains the situation, then deposits any late fees into my account.
In the past using my billers' systems has been a nightmare or two.
One double-billed me one month and would not refund the second billing because my next bill would be due by the time the return would process. The bank could not reverse the charge because the payment came in with my authorization.
I've had more than one bill me too early.
And recently my cell phone bill was over $500 in error two months in a row because of a missing billing code on my data plan. All sorts of fecal matter would have hit the fan if those payments had been automatically debited.
And other incidents of which I cannot recall the details.
Unless the biller is willing to take responsibility for errors on its end and IMMEDIATELY return money taken in error, as well as cover whatever fees or damages are incurred due to the error, payments come via bank bill-pay only. And if that is not acceptable, then the account gets closed and I move on.
And this is bad how? I'm sure buggy-whip and horseshoe makers bemoaned the loss of their jobs with the advent of that new-fangled motorcar gadget. I'm sure those debt collectors can adapt.
'He who has to break a thing to find out what it is, has left the path of wisdom.' -- Gandalf to Saruman
It's not as easy here in the US to have a charge reversed, and if that charge causes you an overdraft fee, you can be really left out to dry in the meantime.
It's not a universal constant that reversing charges has to be difficult, and nor is it that you should incur overdraft fees that aren't reimbursed when a charge is reversed. It's down to the banks to handle the practical implementation in a way that consumers would agree with, but that does nothing to change the evidence suggesting that the concept itself, when properly implemented, is very successful.
I was an early adopter with Paytust (back when they were PayMybills.com). They were bought out by Intuit. I'm still with them today. Here's why:
BORING: Yes, you can do the simple bill payments that you can do with many bank accounts now. You can send a check to a name or an address for a certain amount, perhaps against a specific account number. They'll put everything together and mail out the payment for you.
EXCITING: What makes this service shine is bill RECEIVING. You got bills that come to your house? You change your billing address. You give them a special PO BOX # that is provided with your account. Paytrust will scan the bill in as PDF format. They'll pre-populate the bill's data into your account, matching it with one of your known billers, and doing the data entry for the minimum amount due, the total amount due, and the due date.
In my case, I still micromanage. I get an email from them saying that some new bills came in (and provides the basic details of the bill that I just mentioned). So, most of the heavy lifting is done for you so that when it comes time to pay the bill, it is just 'click a checkbox', 'click a button', and 'click a button to confirm'.
You can set up autopayment rules (which I haven't done) to auto-pay a bill if it is under a certain amount, or to pay off the full balance, or pay against the minimum due, or whatever. I know that they've got some flexibility there.
They're got some added protection for detecting duplicate bills (more than 1 bill in a billing cycle), and also, more importantly, the 'missing bill', to let you know that normally you receive a monthly bill from a company, but nothing ever came.
ORGANIZING: If you read between the lines to see the net effect of all of this, here it is. Basically, I log onto their website. The main screen tells me the bills that I have yet to pay. The bills that I have paid will drop of of that screen. So I instantly know, at any given time, what has or hasn't been paid. Which is so useful to me, I haven't had a late payment on anything since I adopted their service. That has contributed to my credit score reaching a very nice level (and my avoiding late penalties, and punitive APR increases).
RESEARCH/HISTORY: A scan (again, PDF) is kept online for a year (after which, they offer archival CDROMS. So you can go back and, say, figure out when a charge was put on, or when you interest rate changed, or how much electricity you used a year ago. Totally worth its weight in gold in doing the kind of research that only the most organized freak could do before.
You've also got a good summary screen of every payment you've ever made through the system, so you can find out, say, what were the last 10 payments I made to Chase?
Small unexpected but appreciated service: if my credit card company sends me a credit card, or I get a really weird non-bill letter (that isn't spam), they'll forward it to my real address.
So, I hope I don't come across as a shill for these guys, but I'm absolutely a great fan. Their service has really saved me so much time, money, and frustration over the years. One of the best kept secrets of the web, IMHO.
In the US it has been made very easy to set up a bank -with the result that many people, some with fraudulent intentions, do just that. (At the other end of the scale I know of a small community of professional people that set up its own bank just because they didn't trust the big ones, and it was very successful. I am not suggesting that Americans are less honest than Europeans, that is far from the truth.) In Europe the banking system has deep roots in the Jewish community becaue Jews were discriminated against - they could not own land but were allowed to charge interest - and this tension has created what is, on the whole, a very successful and honest banking system. (In fact in the UK banks were also started by nonconformists like Quakers for much the same reason - Barclays being an example.)
The result is that until the madness of the last ten years our banking system was very trustworthy and we were prepared to believe in direct debit systems - which on the whole work very well. Meanwhile in the US banks were still settling interbank transfers with bits of paper, and this is still an issue today - in Chicago we had to set up an account with a subsidiary of the (British) NatWest just to avoid ludicrous delays and overcharging for simple transactions. This is ultimately because in the UK many bankers knew they were less than honest, and so were not inclined to trust other banks. The present credit crisis is because, after years of unregulated credit and junk assets, banks have discovered once again that they cannot trust one another. Paypal is an example of a system that was set up to deal with what is really a US problem, not a general problem.
The answer to direct debits is to make the system as robust as European systems - which make the person asking for the money extremely liable if they make a mistake. But this is unlikely to happen, because US law favours corporations over individuals. And, given Obama's choice of running mate and his connections, voting either way in November won't have any effect.
From scarped cliff or quarried stone she cries "A thousand types are gone, I care for nothing, no not one."
If you use automated payment, if the system fucks up, you'll personally spend hours upon hours on the telephone with said company trying to get the insanity dealt with. "No, no that's not what our system says here sir, the amount we deducted from your account is US$45.97" "But you deducted US$495.70!" "No sir that is not what our system says". It will take days, if not weeks, to get things straightened out.
That's the problem with your system, right there. Here's how it works in the UK:
(Call utility company)
"You charged me £495.70"
"No, we charged you £45.97"
"Refund me £495.70 now, or I'll get my bank to take it back from you.
(In the unlikely event that they refuse, call bank)
"I've been overcharged on a direct debit. Can you refund it for me?"
"Certainly. What's your account number?"
It'll take ten minutes to deal with, maximum.
Yes, this has happened to me.