Switching banks when you have automatic debits
By Laura Bruce • Bankrate.com

If you're unhappy with your current bank, or if you're moving and need to find a new bank, one of the most tiresome tasks can be transferring automatic debits and credits that are tied to your checking account from one institution to another.

It's a tedious job, especially if you're paying a host of bills -- mortgage, insurance, cable, vehicle loan and the like -- through this method. Add to that direct deposit of your paychecks or Social Security payments.

Every company that debits or credits your checking account has to be given the new account information, including bank routing numbers. You have to send written notice because they need your signature. You also must notify your old bank.

Automatic debits don't stop on a dime. Just because you notified Live Wire Electric Company to stop debiting your old account as of a certain date doesn't mean it will happen. You may need to keep the old checking account funded an extra month or two to ensure payments are made.

It's enough to make some people stay handcuffed to the bank that screws up their account or charges them fees for visiting a teller.

"The biggest complaint we hear is switching accounts is a hassle," says Michael Dobbins, senior vice president of direct banking at Charter One.

"Each of those transactions you set up with an individual company. It's a cumbersome process for a consumer and if you multiply it by two different payrolls for a husband and a wife, pretty soon you're telling a lot of people about this switch."

Switch Kits help the transition
Many financial institutions, in an effort to drum up new accounts, have put together "switch kits" containing form letters that help simplify the process.

"We've put together four very short forms that we help the customer fill out. It takes about 15 minutes," says Barbara Thompson, spokeswoman for First Citizens Bank in Raleigh, N.C.

"If they come in the branch, a banker will sit down with them. Some people like to take the kit with them."

Some banks, such as Iowa Savings Bank, boldly link to them on their home pages. Others make you drill down a few pages to find the kit. But that's still a lot better than the ones that offer little assistance other than explaining the benefits of automatic bill payment.

Principal Bank, a totally online institution, designed its switch kit with the help of customers, says marketing vice president David Merlot.

"We really felt that our focus is to help customers save time and money, and when we heard those complaints about how hard it is to switch we worked with a small group of customers to see what the problems were and to address those points."

The Principal Bank switch kit contains a checklist of things to do when changing accounts and a slew of form letters. All a customer has to do is fill in the blanks, print the forms and send them to companies that will debit or credit the account.

Cleveland-based Charter One sweetens the process by paying customers $25 for using its "One Switch" kit.

The kit requires the user to enter basic information only once, lets them create a contact list of all the companies that debit or credit the account, and provides a list of firms that are most often involved in the debiting or crediting process. The bank has all the necessary information about every company on the list. All the customer has to do is click and the company is added to their profile.

"The only information the user needs to provide about their previous bank is their bank account and routing numbers; we fill in the rest," Dobbins says.

"The system will also customize information whether it's an individual or joint account, and it even allows users to enter specific comments to customize letters and forms."

Keeping up with the volume
Automated bill payments have been growing at 18 percent to 19 percent a year for the past six years, according to Michael Herd of the National Automated Clearing House Association.

"It's really quite a large number. For calendar year 2001, there were 2.6 billion payments. And direct deposit of paychecks has been growing by about 10 percent a year," says Herd.

As more people toss their checkbooks and opt for the brave new world of automatic bill payments, financial institutions will be pressured to devise faster and easier ways of helping customers switch accounts.

But customers can simplify the process by setting up an online bill payment plan with their bank instead of allowing individual companies to automatically debit their checking account," according to First Citizens' Thompson.

"We advocate bill pay over automatic debits. With bill pay the customer can exercise much more control. They make a payment when they want to make a payment vs. an automatic debit.

"With automatic debit a company can take money out of your account and you're at the mercy of that company. It makes the switch a little more difficult. Plus, you may have to leave some money in the old account to cover an upcoming debit."

Companies that automatically debit accounts say it takes 10 to 14 days for them to process an account change -- if they're given correct information.

"If a customer gives us the wrong routing number or account number it will take longer because of the research involved," says Ethelinda Reyes of the Los Angeles Department of Water and Power.

-- Posted: Aug. 13, 2001