Direct payments pit control vs. convenience
How would you like it if most of
your bills could be paid without you writing a check, stuffing it
in an envelope, stamping it and dropping it in the mailbox? In fact,
all you'd have to do is look at the bill when it comes in and decide,
'OK, I'll pay this,' and it's done -- poof!
Sounds pretty good, but direct
payment, as it's called, is catching on fire like a wet blanket.
"There's a reluctance to let your
gas company have your checking account number and take money out
of your account," says Susan Robertson, spokeswoman for the Direct
Deposit and Direct Payment Coalition, and an assistant vice-president
at the Federal Reserve Bank in Atlanta. "There's a perception that
there's a risk factor and a privacy factor. That's a myth. An electronic
debit is much more private and risk free than sending a check."
Direct does not equal online
Don't confuse direct payment with online bill payment -- no
computer is needed with direct payment and, for the most part, the
service is free. Direct payment is best with regular monthly bills
-- utilities, car payments, phone bills and mortgages. To set up
the service, you contact your utility company; they send you an
authorization form that you return with some information about your
checking account and a voided check. The utility then has the authority
to deduct your bill every month from your account.
"The company doesn't have direct
access to your account," says Robertson. "An electronic file is
created, and the company has to go through a bank. The bank then
posts a debit to your account."
A survey by the coalition, which
was formed by the Federal Reserve and the National Automated Clearing
House Association to promote direct payment because they say it's
more efficient and costs less than processing paper checks, shows
why only 36 percent of Americans opt for direct payment:
- 97 percent of those surveyed said it's important
to keep their financial information private.
- 64 percent believe their personal information
was less likely to remain private with direct payment.
- 49 percent believe that companies could
go into their accounts and make unauthorized withdrawals.
- 53 percent believe they are more likely to
experience fraud with direct payment.
Wanna be the one in control?
Paul Minsky, a psychologist who specializes in money issues,
says there are a couple of psychological factors at work here.
"The need people have to feel
in control is very prominent psychologically, especially when it
comes to money," he says. "Money is an emotionally charged and symbolic
object for a lot of people -- it represents a certain self-protection.
The Fed needs to make an effort to let people know what happens
if there is a mistake. How much of a hassle is it going to be to
correct. What if there's fraud?
"On the positive side," says Minsky,
"people have a certain degree of satisfaction in writing out a check,
having that control, engaging in a process that's almost a ritual.
You write a check, balance the books -- with direct payment you
take that away from them."
Wade Delk of the Washington, D.C.-based
Check Payment Systems Association, which represents the check-payment
industry and has a vested interest in people continuing to write
billions of checks, says consumers like the control they get with
"If there are five different people
and you're saying 'OK, you can take this,' these people are reaching
into your checking account to take it out and you're losing some
control. You won't know until the end of the month how these transactions
happened. You have to back track to figure out what happened."
Robertson counters with the fact
that if a bill varies from month to month -- for instance, a utility
bill -- the consumer gets 10 days to look at the bill before it's
deducted from their checking account.
"It's the obligation of the consumer
to get back to the biller if there's an error. There are a lot of
protections. A company and a bank can't take any more than is authorized."
Robertson says that if the consumer
and company don't agree on the amount of the bill, the consumer
has the option of telling the company to not submit the bill for
direct payment that month.
If there is an error in the amount
deducted from an account, you have 60 days to notify the bank. Robertson
says the bank is then obligated to give you a provisional credit
while it investigates the situation.
Personal privacy not a problem
As for privacy issues, Robertson claims you give up a lot more
privacy when you write a check.
"A check has the account number,
name of the bank, your address, maybe your telephone number. We're
so used to sending out all this personal information, but we don't
stop to think there are lots of people who see it -- people opening
the mail, sorting the checks, the newspaper or the telephone company
people. I think it's when we're filling out the authorization form
and giving a blank voided check -- that's where the reluctance comes
If you want to get your feet wet
with direct payment, Robertson suggests starting with something
like the phone bill.
"See if anything bad happens,"
says Robertson. "See if you start getting phone calls in the middle
of the night or if your checking account gets cleaned out overnight.
That just doesn't happen, and when people see that they become more
comfortable with it."
According to the Direct Deposit
and Direct Payment Coalition, someone who uses direct payment for
20 bills per month can save $115 a year in postage and check costs.
And, since your direct payment bills will always be paid on time,
you'll also avoid paying late fees. In addition, some banks will
give a lower interest rate on loans if the customer agrees to have
the payments automatically deducted from their checking account.