Automated payments easy to set up, difficult to cancel

As more people make use of automatic payments to pay their bills, some consumers are discovering how difficult it can be to cancel these arrangements.

Debt counselors, lawyers and Better Business Bureaus around the country are hearing an increasing number of complaints from consumers having problems stopping the recurring bills charged to their bank accounts and credit cards. Many people seeking to halt these automatic payments are confused by the rules they must follow, which differ depending on whether payments are linked to a bank account or credit card. Some people have filed lawsuits against vendors or their banks to keep the charges from recurring; in December, Internet service provider America Online, a unit of Time Warner Inc., agreed to pay as much as $25 million to settle a consumer class-action lawsuit over the company's billing practices.

Banks, which typically split fees of between 1 percent and 3 percent on each recurring payment, say they work with consumers to try to resolve disputes. But consumers don't always know and follow the rules for halting recurring payments, and banks say they aren't able to cancel recurring credit-card charges when a consumer has signed a long-term contract with a merchant, such as an extended gym membership. Meanwhile, credit-card companies Visa USA and MasterCard International say they've upgraded their systems to help banks and consumers more efficiently stop automatic payments.

U.S. households last year paid an average 4.4 monthly bills using automatic credit and debit payments in transactions totaling $160 billion, a 42 percent increase from 2000, a MasterCard study found. Last year marked the first time that automatic payments surpassed check writing as the dominant method for paying recurring bills.

More growth is expected this year as card companies process recurring bills for higher-ticket items. Visa saw a 158 percent jump last year in automatic payments for "property management" from a year earlier. American Express Co. has been encouraging owners of large luxury rental buildings to accept automatic payments from their tenants and now has several hundred buildings signed up across the country. Tenants in some buildings may get Amex bonus points when they renew their leases using automatic payments.

Dr. Nancy Burleson's checking account was debited an extra week's mortgage payment on a house she sold in Grand Junction, Colo., last fall when she relocated to New Hampshire. She had contacted her mortgage company, Countrywide Financial Corp., within the required time to stop the company from automatically debiting her checking account and was assured the deductions would stop. But when she next received her bank statement, Burleson, a 48-year-old obstetrician-gynecologist, saw that the mortgage company had debited her account for an extra $819, after her house sale had closed.