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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."

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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 checks.

"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 in."

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.

-- Posted: Jan. 9, 2001

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