How Set and Forget Payments Can Get You In Trouble
Most of us care about keeping a good credit record and making our credit card payments on time. Automatic set and forget payments help us do this. But there is a problem with this. It’s making us lazy. As banks get bigger and bigger, one glitch in their systems can send your accounts into turmoil. If you don’t catch it in time, it can cost you. And this is exactly what happened to one of our readers who reached out to us recently.
From Managed to Chaos in One Week
Sam had been a satisfied Barclay’s credit card customer for years. At a reasonable 9.5% APR with a seamless recurring set and forget payment set-up online, it was her favorite card. Then an error in their system over billed her checking account and sent her finances into disarray.
The problem began when she got a notice from her bank that her checking account was overdrawn. When she looked into the matter, she found that the automatic payment set for her Barclay’s card had somehow billed her twice in one month. Two payments, one after another over the course of several days, were pulled from her checking account without her permission.
The Domino Effect of a Single Error
Like most of us, Sam had several automatic payments set up for other cards, utilities and monthly subscriptions. As Sam did not have a cushion in her checking account and was pretty much stretched each month (like most Americans), so all of her monthly income was allocated to pay different accounts each month. When she was over billed, there simply was not enough in her checking account to handle this double billing from Barclay’s. As a result, not only did many of her bills go unpaid, she incurred fees and charges from several sources and received a ding on her credit report.
Sam immediately called Barclay’s to try to find out why they billed her twice. The customer service representative she talked to had no idea, of course. She asked that they return the double payment to her checking account because that money was allocated somewhere else. They said they would follow up with her.
Don’t Assume That Your Bank Will Follow Up With You
And they did follow up with her, but not how she expected. That following Saturday, she finally got a phone call from Barclay’s. But this call was from their collection’s department. They told her that her payment was late and her account was overdue. Sam was floored. First they take too much, then they penalize for having not having enough! A double error. And when she pulled up her account, what she saw was a mess.
When the Bank Charges You for Their Mistake
Barclay’s had refunded both payments to her checking account, charged her additional interest on the new increased balance, and charged her an additional $26 for refunding both payments! Even weirder? Her account overview actually showed that it was up to date and that another payment wasn’t due for another week!
As Sam repeated her story to each successive customer service rep who kicked her up the line of command, her call was dropped. She had to call back and go through the entire conversation again and again with several people before climbing up the ladder to an actual human who could do something. (Sound familiar?)
The Decreasing Authority of Customer Service
Sam was able to finally resolve the issue after 2 hours on the phone, make a payment to get her account back up to date, and have the $26 refund charge reversed. The bank insisted that they hadn’t reported the late payment to credit report agencies. She later found out this wasn’t true. And the bank refused to refund the interest they charged on the increased balance due to their error of refunding both payments. The manager simply could not respond to that request. In fact, Sam mentioned that the manager acted as if she didn’t even understand the request. It was just a few dollars but this money was not owed to the bank!
Finally, Sam simply gave up trying to get the interest they charged refunded. Satisfied that she at least got the account in order and the $26 fee refunded, she let it go. But it still bothered her.
When a week later she received a letter from them stating that they had reported her late payment to the credit agencies and that it would take at least 30 days for them to change the information, she felt she had to tell someone who could warn people about what had happened to her.
When she reached out to us and told her story, she said she no longer trusted banks and asked if we had any advice to protect her from them. And she wanted other people to know that set and forget payments can get them in trouble. Clearly, if she had the money to pay off her credit card balances she would and be done with them altogether. But like most of us, that wasn’t an option.
As we walk into a future where financial technology overrides human authority, we need to not only understand that systems can fail, but expect them to.
Are Banks Getting too Big to Service Their Clients?
Banks are getting too big to “set and forget.” You may feel that everything is in order, but here’s the thing: mistakes happen. When you authorize automatic payments, you are giving banks permission to pull from your account. But banks who have the power to pull unauthorized money from you in error and then refuse to refund it are technically stealing.
As we walk into a future where financial technology overrides human authority, we need to not only understand that systems can fail, but expect them to. Internal system errors are occurring more and more frequently as banks ramp up their tech to compete with rising fintech companies, cryptocurrencies, and 3rd party mobile pay apps. We will continue to see these growing pains in the future as technology evolves. There will be mistakes and their employees will have less and less power to undo these mistakes. In light of this, Sam wanted some tips on how to restructure her system so she could feel more secure about her finances. The first thing we told Sam was to get back in the driver’s seat.
Banks who have the power to pull unauthorized money from you in error and then refuse to refund it are technically stealing.
How to Take Back Control
1) Simplify Your System
If you have several cards pulling minimum payments from your bank account, you are already treading water with a very thin margin for error. The first thing we told Sam was to try take control of her accounts by consolidating her credit cards using a personal loan at a lower interest rate. This way she will only have one payment to worry about and less exposure to potential errors.
Furthermore, by consolidating her credit card balances into one loan payment, Sam will also save money paying one lower interest rate on her outstanding balance rather than juggling several variable rate cards. In addition, she will lower her debt to credit ratio (credit utilization) which will increase her credit score if she can leave her credit cards alone once they’re paid off.
2) Check All of Your Accounts Once a Month, Every Month
It’s easy to forget to check your accounts when you have everything automated. But if a mistake happens and you don’t catch it, it may have already caused irreparable damage to your finances by the time that you notice it. Although Sam can “set and forget” her new single personal loan payment, we advised her to also set up a Google alert on her calendar to remind her to log into all of her accounts at least once a month to make sure everything is in order.
3) Keep A Cushion in Your Checking Account for Damage Control
The majority of us are stretched month to month. If a butterfly flaps its wings in some software in our bank’s financial systems, all of our automated accounts payables can tumble. While we know we are supposed to have emergency savings somewhere, few of us keep a cushion of cash in our main account to cover mistakes. By keeping an extra month’s worth of funds in your main account, you can avoid overdraft fees and other charges if something goes sideways. These days a mistake can not only cost you tons in fees and interest, but can also affect your credit score.
The Bottom Line
Technology is awesome but it is not foolproof. We are walking into an age where almost all of our financial services will be automated. While this is convenient, it can be extremely costly if you don’t keep tabs on it. The banks already take enough from us so that they can use our money for free. Make sure you are not inadvertently giving them more.
Financial technology does not relieve us of the responsibility of verifying that the automated systems we employ are doing what they are supposed to do.
If this story resonates with you, take a day out of your week and check into what you’ve got set up. Look into options such as debt consolidation loans, or balance transfer cards, to try and simplify your financial system, save money on interest, and limit your potential exposure to bank fees and charges. Pick a date each month and set a reminder on your calendar to check up on your accounts and make sure that everything is running as you authorized it. It’s time for all of us to take our power back.
Does your set and forget system need a wellness check?
The stories are real. The names have been changed.
Have a financial journey story to share? Send it to [email protected].
Photo: Karen Goodfellow