Automated Bill Payments Are a Cinch (Not So Fast)

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A few months ago, in my first column for this newspaper, I extolled the virtues of automated bill payments: Set them up once, let your utilities, phone and credit card companies pull what you owe from your bank account each month and never sit through the drudgery of a bill-paying session again.

And boy, did you let me have it. I heard from a number of readers who thought I was out of my mind for suggesting that they send money out automatically each month or give billers unfettered access to their credit cards and bank accounts. Horror stories poured in, as well as several specific questions and concerns.

So this week, we’ll look at five reasons that people are wary of automating their financial lives this way. But first let’s back up and define precisely what we’re talking about.

Until the 1990s, most of us were stuck writing a whole bunch of checks each month to pay our various bills. Then came the early Web-based bill payment systems, where we’d go to a bank or biller’s Web site and push a few buttons to move money to the right places.

Only more recently, however, has it become possible to pay each bill every month without lifting a finger. There are three basic ways to do this. 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, which will become clear as we march through the hiccups that can occur when automating your payments.

Errors

Some people fear giving companies the ability to draw money from their bank accounts because they worry about mistakes. If a biller takes thousands of dollars more from their account than they should, it could lead to overdraft fees and a huge hassle trying to get the money back.

So how often does this happen? Nacha — the Electronic Payments Association, a nonprofit association that oversees the network that automated payments travel on, says the error rate is 38 for every 100,000 bill payments. This figure counts mistakes that banks report but doesn’t include problems that consumers solve directly through the billers. (Nacha once stood for National Automated Clearing House Association; automated bill payments are one of many kinds of A.C.H. transactions.)

If an error occurs, according to Elliott C. McEntee, Nacha’s chief executive, the association’s rules, which all banks that deal in A.C.H. payments follow, require banks to automatically credit customer accounts for the mistake.

Consumers get the credit as long as they inform the bank of the problem within 15 days of receiving the bank statement with the error on it. People who miss that deadline still have recourse under federal rules, which give consumers 60 days to report the error, but the credit could be provisional at that point until the bank determines who’s responsible for the error.

Are customers quickly made whole all of the time? Probably not, because banks may neglect to follow the rules and their customers may not read their bank statements quickly or carefully. But if there’s a problem, go to your bank first and request a credit before you complain to the biller. Mr. McEntee suggests calling your bank rather than talking to a teller, because phone representatives should have scripts that prompt them to issue the credit.

If you’re charging every possible bill to your credit card, you’ll have an opportunity to catch the mistakes on the monthly card statement before you pay the bill. Then, you’re vulnerable only to the card company itself pulling the wrong amount of money out of your bank account. Also, you can earn lots of rewards from the card company. Just be sure to pay the bill in full each month, lest interest wipe out the value of the freebies.

One other thing to keep in mind: While billers make plenty of errors, consumers probably make even more. People forget to pay, pay late or pay the wrong amount. Part of the point of automation is to protect the mistake-prone from themselves.

Service That Won't End

For months after John Wald, now a finance professor at the University of Texas, San Antonio, moved, his local phone company in Pennsylvania kept drawing money out of his bank account, even though he had canceled the service.

His bank was able to put a stop to the withdrawals but did not issue any temporary credit for the money that was already gone. It took a year to get the money back from the phone company, and now he steers clear of automated payments.

Stopping the automated payment, at least, may be easier if you’ve set it up through your bank’s online bill-paying system.

“Rather than authorizing a biller to take money out and losing total control, we give you that control back,” said Mary Beth Lawson, director of product management for CheckFree, a provider of online bill payment systems. Customers sign up on the bank’s Web site, not CheckFree’s. CheckFree sometimes handles customer service for banks, too, and can get the biller on a conference call with a customer to try to resolve refund requests and other mix-ups.

Expired Credit Cards

One potential problem with using credit cards to pay your bills each month is that they expire. Terry Perkins, an information technology consultant in Morristown, N.J., ran into this problem with Verizon two years ago. She said that she hadn’t noticed the lack of a charge on her credit card statement and that the company hadn’t sent any bill, warning or reminder that it needed the new date until a notice turned up in the mail saying her phone was about to be cut off.

“You get this really cold, intemperate letter where you can just infer from it that you must be a dirtbag,” she said. “I finally just said forget it, you guys are never going to have this privilege again, where you have access to my credit card.”

Bob Elek, a Verizon spokesman, said he couldn’t comment on Ms. Perkins’ situation but that the company can now get the new expiration date without a customer’s help 90 percent of the time. Otherwise, the company calls the person’s home and sends e-mail messages to try to get it.

Indeed, Visa and MasterCard have programs that allow participating card companies and merchants to get new expiration dates automatically so they can continue customers’ automatic bill payments. Here’s hoping that becomes standard operating procedure. Until it does, you should put in a round of calls to billers around expiration time to make sure they have the new expiration date.

Security

Are you risking identity theft or other problems by giving so many companies access to your credit card numbers or bank accounts each month? Some people still think so.

But Bruce Cundiff, director of payments research and consulting for Javelin Strategy and Research, says the nonautomated approach is more problematic. If you’re paying bills one by one each month via your bank’s Web site, you need to worry about whether anyone has installed software on your computer that would capture user names and passwords. And not having paper statements and checks floating around that could be stolen from the mail is a plus as well.

Complacency

If you’re not careful, automated bill paying can easily lull you into believing that everything is taken care of and no vigilance is needed. Scott Cole, a television editor for CBS who lives in Jersey City, said that his almost daily ritual of checking Quicken and then pushing the button to pay the bills once each month keeps him aware of each payment. It also forces him to think about whether the cost for any particular service has gotten unreasonably high.

Mr. McEntee, of Nacha, does have 17 automatic deductions taken from his bank account each month, but he keeps a list of them handy and then checks them off one by one with his bank statement each month.

I still think it’s possible to achieve Mr. Cole’s level of awareness while having Mr. McEntee’s volume of automated payments. Keep a cushion of cash in your checking account if at all possible to avoid unexpected overdrafts and jump on any errors if you’re unlucky enough to experience them.

In essence, the first principle of the automated payment is this: If you simply set it and forget it, you’ll probably regret it.