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Frequently Asked Questions About Direct Payments
What is direct payment and how does it work?
Direct payment is similar to direct deposit. With direct deposit, your pay is deposited into your bank account automatically. With direct payment, your bills are paid from your bank account automatically.
How do you get started?
A customer simply completes a form authorizing a company, such as your mortgage holder, to initiate payment directly from your bank account. The authorization will require your account number and the routing number of your bank. With your authorization, your biller will instruct its financial institution to debit your account on the due date of the bill. When that happens, the payment is automatically released from your bank account on the payment due date. This withdrawal is easy to track because it shows up on your monthly bank statement.
Which bills can direct payment be used for?
Direct payment can be used for bills that are the same amount all the time and for payments that vary from month to month. Direct payment is often used for mortgages, car loans, insurance premiums, health club dues, cable TV, utility payments, investments, and credit card payments. Many people also use direct payment for tuition and charitable donations.
Is direct payment new?
Direct payment has been a highly reliable and confidential payment method for more than 25 years and uses the same network as direct deposit. In 1998, more than 1.2 billion payments were made by direct payment. It is secure and confidential - much more so than checks.
Who benefits from direct payment?
Everyone benefits - consumers, companies, and the country. Consumers save time, hassle, and money. Most people spend the equivalent of about three days a year paying their bills. An average family with 15 - 20 monthly bills will pay about $60 to $85 a year for postage, $30 for checks and could have up to $100 in late fees for payments that were mailed or received too late. Consumers also ensure that their payments are made confidentially and on time.
Since direct payment is more efficient than checks, businesses and the nation's payment system benefit because they can operate more effectively with direct payment. In addition, direct payment saves companies an average of 11.5 cents per item (relative to checks) due to reduced processing costs. The country benefits by having fewer consumers writing checks that can get lost or stolen. Direct payment also helps companies improve their cash flow, save time, and enhance customer service.
How many people use direct payment?
According to the National Automated Clearinghouse Association (NACHA),
43 percent of all U.S. households use direct payment for at least one recurring
payment.
Will consumers save money by using direct payment?
Yes. Direct payment saves consumers an average of $85 a year in postage and up to $30 a year in check costs, according to the National Automated Clearinghouse Association's estimate of 20 monthly bills per family. If used by the more than 100 million households in the United States, direct payment could save American consumers many millions of dollars a year in postage costs. Consumers will also save the cost of late fees incurred when checks are mailed or received a couple of days late.
How much money will the country save if everyone converts to direct payment?
Widespread use of direct deposit and direct payment would bring enormous efficiency to our nation's payments system. If each of the 100 million households in the United States used direct payment for 20 payments each month, the savings in postage costs would be over $8 billion. This also would result in untold efficiencies in the nation's payment system.
Are there other names for direct payment?
Some people may refer to direct payment as automatic bill payment or automatic debit or direct debit.
What is the relative cost of direct payment versus checks?
Very often direct payment does not cost consumers anything. In fact, it saves consumers time and money in postage, checks, and late fees. Billers typically do not charge for direct payment. Some financial institutions may charge a nominal amount, usually a few cents. Check with your financial institution.
What are the consumer protections with direct payment?
Regulation E and the NACHA Operating Rules regulate direct deposit and direct payment. Among other protections, these rules give consumers 60 days to stop or reverse a payment if they believe there is a mistake. In addition, it is the obligation of the biller's bank to make certain that the biller is legitimate. Regulation E also requires companies to notify consumers 10 days in advance if the amount of a bill varies from the previous bill. Additional rules pertain to government payments.
If I use direct payment, can my billers take extra money from my account?
Regulation E as outlined in the NACHA Operating Rules protects consumers against unauthorized debits from a checking or savings account. It also outlines rules that prohibit a company from taking money from an account before the date specified and requires a company to inform a consumer 10 days before changing the amount or date of the debit. If a company mistakenly deducts extra money, Regulation E also provides action steps consumers can take to correct the error.
Can those who send me bills see how much I have in my account?
With direct payment, companies never have access to your bank accounts. Direct payment simply authorizes your bank to automatically release your payment to your biller's financial institution at a pre-arranged date. You actually gain privacy with direct payment because checks pass through many hands. Your checks also contain information about you.
What if the companies that I pay do not offer direct payment?
Tell them you consider direct payment a service and ask them to start offering it. Many businesses say they began to offer direct payment because customers asked for it.
How do I stop direct payment?
The original authorization agreement with your biller outlines procedures the company requires you to follow to revoke a direct payment authorization. In most cases, you notify your biller in writing - at least one billing cycle in advance - that you wish to stop the payment.
What happens to my direct payment if I change banks?
Just complete a new authorization with your new banking information and give it to your billers. Be sure not to close your old account before the authorization process has been completed.
