7 Ways Auto-Payments Can Screw You

By Carrie Kirby on 25 November 2014 2 comments

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Setting up automatic bill payments can be a great way to avoid late fees and save time. But if your attitude is "set it and forget it," auto-payments can also come back and bite you in the butt. (See also: 5 Ways to Automate Your Finances)

Watch out for these seven auto-pay betrayals.

1. Overdraft Fees

Personally, I only set up automatic payments using my credit cards, not my checking account. The reason is that if my account is ever on the low side, I don't want to risk having an automatic payment sink me down into the red, triggering an overdraft charge. Consider setting up account alerts to notify you of low balances in order to avoid this snafu.

2. Account Closure

A good friend was recently prey to the all-too-frequent scourge of credit card fraud. Her card issuer assured her she was not responsible for the fraudulent charges, so she wasn't worried about that. Her worry was that if she closed the account, she would have to call all her recurring billers — the gym, the cable company, etc. — to give them the new number. What's worse, if any of the billers mess up and don't switch to the new card number, you could end up with late fees on those accounts. And if you're me, you'll probably forget to notify at least one biller, and end up missing several payments before you realize your oversight.

3. Fraud

I had a stored-value card for our local public transit system, set to automatically replenish its funds from my credit card account. This is very convenient — for people who are good at keeping track of their card. I lost mine, and since I don't take public transit daily, it was a couple of months before I realized it was missing.

It was only after I noticed one month that our credit card had been billed for over $100 for transit card refills that I realized something was going on. Once I looked into it, I realized that my card had been used by someone else for several months and I had been defrauded by more than $300. I have an investigation pending with the system, and I have a new card — which is not on auto-pay.

4. Vendor Errors or Vendor Fraud

Once you have given a vendor your credit card or checking account number, they can, in some cases, continue billing your account — even more than you agreed to. Check out this Q&A cell phone company US Cellular had to publish last year to deal with the fallout after their auto-pay system went haywire and billed people for two months' service at once. Then there are disreputable companies that might sign you up for one service and then start billing you for things you didn't order. Read the fine print and double-check that no additional charges will be forthcoming without your express permission

5. Cancellation Difficulties

This one happened to me with the phone company. I moved and canceled service, but they just kept right on charging my credit card every month. At first, the charges went unnoticed in the chaos of a cross-country family move, but by the time I noticed it, I had to call customer service again and again before it stopped. Each month, the agent would say the problem was taken care of and that a refund was being processed. But the the next month, lo and behold — I was billed again. Consider getting confirmation in writing of cancellations.

6. Forgetting to Cancel

The flip side of the above is when you put a service on auto-pay, then completely forget you are paying for it. If you don't study your credit card bill or bank statement carefully each month, you might pay for years of that music streaming service or beer of the month club without remembering that you never listened to it or you stopped drinking beer.

7. Lack of Vigilance

When you have to manually pay a bill each month, you tend to look at the amount you're paying and the statement. When I pay my electric bill, I compare it to the past month and the year-before's bills, and if it went up, I think about what we might have been doing differently to use more electricity. But I tend to slide on watching bills that get paid automatically, like our phone bill. Even if we still receive a paper statement, if I know the bill is paid it's too tempting to just recycle the bill without opening it. This could lead to unpleasant surprises if your bill goes up or fluctuates. Fight the temptation to ignore the amounts billed, and pore over your statements on occasion. You might be glad you did.

Have you ever been burned by auto-pay? Tells us your story in comments!

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Guest's picture
Guest

I've heard more than a few stories of gyms that keeping the monthly bill going even after you've cancelled. It is made difficult to correct and in the end your refund will be issued after (only) six weeks. I once put (and paid for) a stop payment on the account to ensure a car lease payment when stop when it was supposed to. I'm very leery of setting up ongoing charges or deductions or auto-pay of any kind.

Guest's picture
Mitchell Goldstein

Autopay works great for me. I get notifications when the payment is going out. Better yet, I get an electronic bill. I get notifications when the payment has been sent. I monitor the account every month to make sure all payments are made. It is supposed to help make payments easier and NOT replace monitoring. If you set the autopay up through your bank, you can look at all of the payments in one place, never have to give the information out to creditors, and change or cancel the payment with ease.