Mistakes Can Happen With Automatic Billing

THE ADVANTAGES TO automatic bill pay are obvious: No 41-cent stamps to buy, no payment schedules to juggle, no late fees to worry about.

1. Late Payments

Just because you set up automatic payments for, say, the first of the month, don't assume that your payment will be received at your lender by the next day — even if the payment is made electronically. "Nothing is really instant — not even automatic online bill pay," says Edgar Dworsky, founder of Consumer World. "Many automatic payments are sent by good-old-fashioned check." (That's why online-bill-pay systems ask for the company's mailing address, as well as your account number.) The difference in processing time between a true electronic payment and a check can be as many as five days.

2. Lost Payments

Automatically sent doesn't always translate to automatically received. There's plenty that can go wrong between Point A (you) and Point B (the payee). "Sometimes they just don't get the payment," says Linda Sherry, a spokeswoman for Consumer Action. Sometimes the financial institution mishandles sending out the money. Other times, the check does indeed get lost in the mail. Or the payee may not have processed it correctly. Another common ding: change of address. "Credit cards are notorious for changing the address to which you send payment," says Dworsky.

Righting Automatic Payment Wrongs One late or missed payment can initiate a tidal wave of repercussions — not just late fees, warns Arnold. Lost electric bill payment? Say goodbye to service during the dog days of summer. One late credit-card payment can nullify promotional APRs, ding your credit score and increase rates for other loans and cards you hold. That said, if the automatic bill pay error isn't your fault, press the company responsible — be it your credit-card company, bank or bill payee — to take care of any resulting charges, he says. Your Internet provider, for example, should be willing to pay overdraft fees if their double billing caused you to overdraw your bank account, just as your bank is responsible for the late fee to your landlord if your rent payment was waylaid. To take care of the other problems, work your way up the customer-service chain, says Dworsky. Be prepared to show proof that you weren't at fault. Usually, all you need is a printed copy of the online auto-pay transaction that shows the date you scheduled and/or sent payment. You can access this for free via your online account history.

3. Unexpected Withdrawals

When you set up automatic payments through a company with which you do business, you have little control over just when they pull money from your account — and with a fluctuating bill, even how much they take, says Scott Bilker, founder of DebtSmart.com. "Say you pay your cellphone bill automatically," he suggests, "and your teen racks up a $1,000 text-messaging bill. When you're thinking you're on the $30-a-month plan and it is actually $1,030 coming out of your checking account, that's not fun. And it's harder to dispute, because they've already taken that money."

4. Incorrect Withdrawals

Computers make errors. Those that handle automatic payment and online-bill-pay systems are no exception. There are plenty of ways auto-pay can go wrong — from double billing to a single charge that's bigger or smaller than it should be.

5. Difficult Cancellations

Automatic payments are the zombies of the finance world, says Sherry: They keep coming back long after service has expired, and are difficult to stop. Internet service providers and fitness clubs are particularly notorious for continuing to charge you long after you've cancelled service. "It can be hell to get them off your back, to get the payments stopped," she says.

6. Bill-Pay Fees

As online bill pay becomes more popular, most financial institutions are offering it (including automatic bill pay) free of charge. There are, however, a few stragglers that make mailing handwritten checks and buying 41-cent stamps seem cheap in comparison. Chase charges a $4.95-per-month bill pay fee to consumers using its Basic Checking, Budget Checking and other select accounts, while Wells Fargo bills Basic Checking account holders $6.95 a month for up to 25 bill-pay transactions; 40 cents each thereafter.

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