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Have bills deducted
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July 15, 1999: 1:56 p.m. ET
Automatic payments can save consumers time and money
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NEW YORK (CNNfn) - Numerous companies have banded together to make bill-paying one-stop shopping and seamless through automatic payment arrangements.
So forget the check-writing rituals each month and the trips to the post office. Automatic bill payments from your checking account offer peace of mind and protection from late fees.
Saving on stamps
"Direct payment users who write 12 to 20 bills a month can save up to $80 a year in stamps alone, not to mention the cost of purchasing checks and, on occasion, paying late fees because the payment did not arrive in time," says Rich Oliver, senior vice president of the Federal Reserve Bank of Atlanta and spokesperson for the Direct Deposit and Direct Payment Coalition.
The coalition is comprised of the Federal Reserve Banks and the National Automated Clearing House Association, a trade group representing 13,000 banks and credit unions on electronic funds transfers.
Online banking and bill payment -- which allow customers to make payments over the Internet -- are all the rage, but only about 30 million households currently use these methods. More than double that number of households rely on non-Web and software methods to pay their bills each month.
The payment process
Unlike online banking, automatic bill payment requires no computer and no software, and is generally a free process. It involves setting up an arrangement with a company to have money automatically deducted from a bank or credit union account on a certain day of the month to pay a bill.
More specifically, here's how automatic bill payment works.
You start by giving a company permission -- in writing or over the phone -- to debit cash from a checking or savings account for a bill payment on a certain day of the month. Most companies ask for a voided check from your bank account to verify who you are. In turn, many companies will provide you with an authorization form for you to sign and return. Keep a copy of the written authorization for your records.
Once the form with the start date, amount and voided check is sent to the company, it generally takes between four and six weeks for the first bank debit to occur. If the dollar amount of monthly payments varies, the company is required by law to send the customer a notification of the payment amount 10 days prior to the payment transaction.
To process a deduction, the company prepares a file one or two days prior to the bill due date for delivery through the Automated Clearing House network, which processes debit card and credit card transactions for its financial institutions.
From there, the company's financial institution processes the information, extracting any transactions for its own customer accounts, and delivers the remaining transactions to the ACH operator for distribution.
On the settlement date, the ACH operator posts settlement to the company's financial institution and offsets settlement to the customer's financial institution.
The customer's financial institution reports the transactions monthly on customer account statements.
Types of bills keep growing
The types of bills that can be paid through this process have grown from telephone and utility payments to health club monthly fees, cable television payments, and newspaper and magazine subscriptions.
Using automatic bill payment for car insurance is an increasingly popular way to keep coverage intact. At Washington-based GEICO Direct, the nation's seventh-largest auto insurer, the direct-pay program accounts for more than 25 percent of its customer base, says Walter Smith, assistant vice president of GEICO.
Insurance policyholders can arrange for monthly installment payments to be withdrawn based on a schedule the company sets up. Depending on the state where the customer lives, the installment fee for each payment varies between $1 and $3.
Senior citizens in Florida who are on a fixed income can arrange for their electric bill to be paid on the day they receive their Social Security, disability or government check through Florida Power & Light's 62Plus Payment Plan. The arrangement is also available to anyone who receives monthly government checks, according to a company spokesperson.
Bills, payments coordinated
Most Social Security and other retirement benefits arrive during the first few days of every month, and for many customers who receive retirement benefits, electric bills are due later in the month. The utility company's plan allows for payments to be deducted from a bank or credit union account after the past due date, without penalty.
Consumers can stop a payment by notifying their bank or credit union orally or in writing from three to 14 business days before a scheduled payment is due. Check with your financial institution.
Some banks will charge a fee for each stop payment ranging from a few dollars to $28. Just like a paper check, if there's not enough money in the account at the time the deduction is made, your financial institution and biller may charge you returned-item fees. As a courtesy, the customer may also want to let the company know that they are stopping payment. To discontinue an automatic payment arrangement, the customer must send a written request to the company.
"You could say that direct payment is the grandfather of electronic banking," says Michael Herd, a spokesman for the National Automated Clearing House Association in Herndon, Va. "Over the past two decades, it has come to be the healthy and mature standard for all other electronic fund transfer operations." 
-- by Bank Rate Monitor for CNNfn
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