- The Washington Times - Tuesday, May 30, 2000

The old joke, "The check is in the mail," may soon become obsolete if the Federal Reserve has its way.

The central bank would like to wean Americans away from their check-writing habits and move them into the 21st century with electronic payments. To reach this goal, the Fed has teamed up with the electronic payment industry to educate the public about the benefits of direct deposits and payments.

Households that make full use of automated payments would save an average of $85 a year in postage and $30 a year in check costs, according to the Fed and banking industry estimates.

Note that there is some self-interest on the part of banks. Electronic payments and deposits enable money to move through the system faster, which means it can spend more time earning interest and less time in mailboxes. Electronic money transfers also reduce the cost of processing checks.

Both direct deposit and direct payment services have been available for 25 years, but they have been slow to catch on with the public. Of the two services, direct deposit is far more accepted.

"People don't mind money being put into their accounts, but not taken out," says Susan Robertson, assistant vice president of the Federal Reserve Bank in Atlanta. "But it's a wonderful timesaver, and very rarely are there any problems with it."

A recent banking industry poll found that 55 percent of consumers use direct deposit, mainly for paychecks, according to the National Automated Clearing House Association. The association, which conducted the poll, was founded by a group of bankers in 1974 with the goal of replacing paper checks with electronic payments.

The poll found that direct deposit is used for a variety of transactions, including salary (78 percent of those using direct deposit), government benefits (40 percent), tax refunds (28 percent), private pensions (23 percent) and dividends (14 percent).

Direct payment is less popular. According to the poll, 43 percent of U.S. households use direct payment for at least one recurring bill. Of those, 84 percent say they are satisfied with the service.

The direct payment service allows consumers to authorize merchants to deduct money from their bank accounts to pay bills on a regular schedule. The service is usually free and can be started or stopped whenever the customer chooses.

Direct payment can be used for all types of payments, including mortgage, insurance, utilities, cable TV, investments, health clubs, car loans, credit cards and charitable donations. It is most popular with fixed payments, such as mortgages or cable TV fees.

When consumers use direct payment services, they usually receive a bill about 10 days before the payment is deducted from their bank account. This enables consumers to make sure their bank accounts hold enough money to pay the bill. Consumers can arrange for partial payments when monthly bills are too large to be managed in one payment.

Once the money is debited from the bank account, consumers get a receipt for the payment. Payments are listed on monthly bank statements, so there is always a record of the transaction.

But according to the banking industry poll, many people (64 percent) are fearful direct payment is not safe. Consumers worry companies might take money out of their accounts without permission, particularly if there is a dispute over the cost of a service.

Such fears are misplaced, Ms. Robertson says.

"You have more control over privacy with the direct payment system," she says. Federal Reserve regulations prohibit billing parties from making unauthorized debits from a consumer's account. The Fed also requires that billers give consumers 60 days to stop or reverse a payment if they believe a mistake was made. And the rules bar merchants from taking payments before the date the bills are owed.

The banking industry maintains that the direct payment system actually is safer than paper check processing because electronic transactions pass from one institution to another so fewer people have access to the data.

Consumers interested in starting a direct payment system should contact merchants and ask if they participate in the program.

For those who are leery of the service, Ms. Robertson suggests trying the service with one bill, say a utility payment, where monthly costs are predictable.

"Sometimes, habits are hard to break," she says, adding that the direct payment system should work well for people who normally pay their bills on time. For those who are prone to letting their bank accounts run dry, the service might not be the best choice. A bounced check bounces just as high if it is in the form of an electronic payment.

Have a question on work or family finances? Get in touch with Anne Veigle at 202/636-3014 or e-mail [email protected]

More information:

On line

• For information on the direct payment and direct deposit programs, see www.directdeposit.org and www.directpayment.org.

• Information on the Electronic Funds Transfer Association is available at www.efta.org. The association is the main industry trade group promoting the use of electronic payments.

• The Federal Reserve Bank's research on electronic payment systems is on the Web site for the Federal Reserve Bank of St. Louis: www.stls.frb.org. The main Web site for the Federal Reserve Bank is www.bog.frb.fed.us.

• To learn about the latest technologies used by financial institutions and companies involved in electronic commerce, see www.microbanker.com.

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