These days it seems like every company is offering to enroll you in an automatic payment program. While they claim auto pay is a service solely for your convenience, they’re not doing it out of the goodness of their hearts. In fact, auto pay provides a lot of security, control, and extra income opportunities for the companies who are billing you.
I just saw a charge on my own bank statement the other day for an auto pay with a phone service I cancelled two years ago. When I called them up to dispute the charges (which had posted every single month, unknown to me) they refuted that I ever cancelled the service (I did). Since I had no proof, the best I could do was come to a compromise and get a partial refund.
Today we’re going to look more closely at the auto pay phenomenon and discuss some potential pitfalls. According to the market research firm eMarketer, 56% of Americans enroll at least one bill with auto pay. These days credit cards, car payments, cell phones, and even your daily newspaper are happy to sign you up for autopay, as well as automatic renewal (another big money maker for companies.)
So are there ANY benefits to the consumer? Sure, auto pay is convenient because the bill payer doesn’t have to get yet another statement in the mail, write another check, or stuff and stamp another envelope. That’s definitely worth something, and the peace of mind that the bill will be paid on time, without thought or action, creates simplicity in a very cluttered, hectic world.
However, consumers should be careful because what they call “automatic” isn’t necessarily automatic, and peace of mind can turn into a big, expensive mess if things go wrong. Remember that a late or missed payment can hurt your credit score, trigger a higher interest rate, end a promotional offer, or even affect your other credit card accounts. Here are some thorns you should look out for on the auto pay rose.
Bill pay fees: Believe it or not, the majority of institutions charge you a service fee or billing fee for the privilege of using their auto pay services, sometimes up to $4.95 or higher. All of a sudden the price of one stamp doesn’t sound tgat bad, does it?!
Cancellation issues: Cancelling your account or service once you’re enrolled on automatic payments, or turning of auto pay itself, can turn into a war of wills and hours stuck in a phone tree. To cancel auto payments you can’t just request a discontinuance with your own bank (where the payments are being withdrawn,) but you have to get the OK from the company you’re set up with. So if there’s a dispute or problem you’re at their mercy – and the money will keep coming out.
Automatic doesn’t mean perfect. Even though it seems like a simple, flawless transaction, a lot can (and does) still go wrong. When an automatic payment is posted it still needs to be electronically registered with your bank, withdrawn, and the money transferred, and then processes on the biller’s side. Some banks still use paper transfer systems! Even one glitch in the system, holiday, or delay could cause a payment to go late – and guess who is stuck with the late fee?
Change in payment dates. This often happens when credit card companies, who sit around thinking of new and interesting ways to squeeze more money out of you, change their payment due date. Sometimes they forget to send that memo to the auto payment department to make the appropriate change, and your payment will post late.
Change in payment address or bank information. Credit card companies are also notorious for changing their payment address or even their bank routing information but not alerting you, the consumer, so you can make the appropriate changes with your auto pay agreement. Of course the payment doesn’t show up or goes late, of course you get whacked with huge fees, and of course there is usually nothing they will do to help you rectify the situation.
“Mistakes.” It still amazes me that the vast majority of “harmless mistakes” are in the company’s favor, costing an unwitting consumer money and leaving the time-consuming onus of clearing up the problem to them. If you’re like me, and another call to customer service where you get transferred and hung up on for hours will drive you loony, these mistakes cost you more than just money, but valuable time and energy.
Are all auto payments bad? Not at all, but a consumer should understand their risk and reward, and still take time to manage their accounts to avoid bigger problems and errors. Good luck!
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