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Be careful shifting into automatic bill pay

Worst-case scenario: The credit card company could tell you to work it out with the merchant, she says.

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But the vast majority of the time, credit card companies will do exactly as you've asked, says Chi Chi Wu, staff attorney at the National Consumer Law Center.

If you are stopping an automatic payment arrangement you made via credit card, that should be fairly easy, says Wu. "I haven't heard complaints with credit card automatic payments the way I have with debit cards," says Wu. "The credit card company has more leverage (with a merchant) than the bank."

If you've set up an automatic arrangement through your bank account or debit card, then the transaction is governed by the federal Electronic Fund Transfer Act. That means, "you have the right to stop an automatic transaction with three days' notice -- oral or written," says Wu. But the party you contact is the bank. And they could require written notice within 14 days, she says.

Sometimes, you need to get a little pushy with your bank, she says.

"The banks don't like it. They will tell you to go to the merchant and stop it," says Wu. But it is the bank that is legally required to stop the transactions, she says.

Here's one possible reason why the banks are reluctant: "It's harder for banks to catch recurring payments," Wu says. "They have to do it manually."

And sometimes the merchant makes it harder. If the bank is looking for a recurring bill of $40, and the merchant breaks the bill into two $20 charges, it's that much harder to catch.

The bank may also "require written proof that you told the merchant, but it can't require merchant consent," says Wu. So when you send a letter to the merchant, just copy your bank.

The onus is on the banks to do what you ask, says Wu. And if any money comes out of your account, the bank is required to restore it, along with any fees the unauthorized transaction may have triggered.

If the bank won't cooperate, complain to its regulator, says Wu. That would be the Office of the Comptroller of the Currency for national banks and the Office of Thrift Supervision for thrifts.

The moral of the story: Tread carefully with automatic payment arrangements, and think twice about the type of bill, company you're paying and payment method before you make any arrangements.

"There's no such thing as true autopilot," says Arnold. "It has its own potential pitfalls you have to watch out for."

While you save the hassle of writing a check, you still have to go over the bill and verify charges and balances, he says. "There's no way of getting around the legwork."

Dana Dratch is a freelance writer based in Atlanta.

-- Posted: Nov. 1, 2006
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