Monday, August 30, 2004

Big business is getting pickier about how customers pay their bills.

Companies are discouraging customers from writing checks and paying bills in person, urging them instead to log on to the Internet or to use automatic banking account withdrawals to pay for goods and services.

Northwest Airlines last week became the latest corporation to hop on the bandwagon, when it began charging customers a $5 fee if they order their tickets from one of the company’s telephone reservations clerks.

Purchase your ticket at one of Northwest’s airport check-in counters and you’re slapped with a $10 fee.

If customers want to buy tickets directly from the airline, the only way to avoid an extra fee is to order them through Northwest’s Web site.

“Companies are trying to make us do their customer service for them,” said Gail Hillebrand, a senior attorney for Consumers Union, the advocacy group that publishes Consumer Reports magazine.

The move toward technology helps companies cut labor costs, but it threatens to leave behind people who are unwilling or unable, including the elderly, the poor and customers with privacy concerns.

“From a budget standpoint, many retirees are in a tough spot because they’re on a fixed income. This doesn’t help,” said Greg McBride, senior analyst for, a personal-finance Web site.

Utility companies, including power companies and telephone and cable television service providers, routinely send their customers notices reminding them that they can pay their bills online.

The notices drive home the idea that customers can spare themselves the trouble of having to write a check and deal with postage. A Bank of America television ad emphasizes the convenience of online bill payment, showing a woman paying her bills while popping popcorn.

About 70 percent of Potomac Electric Power Co.’s customers pay their bills by mailing in a check or bringing their payments to one of the company’s business offices, said Michael Sullivan, vice president of customer care for Pepco Holdings Inc., the electric utility’s parent company.

The other 30 percent pay online, through automatic withdrawal from a bank account or other services, such as an automated “natural language” telephone service that allows customers to speak their check number and its amount into their phone.

“Anything we can do electronically is preferred,” Mr. Sullivan said.

Pepco customers have been able to pay their bills at local banks, but the company is phasing out that service because the banks want to charge the utility company for their processing costs, Mr. Sullivan said.

Roughly 10 percent of all Washington Gas Light Co. customers pay their bills online, said spokesman Miguel Gonzalez. Six percent to 7 percent pay through an online bill payment arrangement they have with their bank, while an additional 3 percent to 4 percent pay on a credit card or by giving the company permission to take the money directly from their checking accounts.

Customers can still pay their bills the old-fashioned way, either sending a check or visiting one of the company’s offices around the region.

“They have lots of options,” Mr. Gonzalez said.

Mitchell Schmale, a spokesman for Comcast Corp., which delivers cable television and high-speed Internet service in the Washington area, declined to say how many customers use its online bill payment service.

The Philadelphia company has no plans to stop accepting paper checks from its customers, Mr. Schmale said, although he didn’t rule out such a move. But such changes won’t be for the “foreseeable future,” he said.

Some lenders also are encouraging customers to use automatic deduction services.

Analysts say the big financial services like this method for two reasons: It reduces the risk that customers will pay their bills late, and it discourages them from doubling payments to pay off their loans sooner.

In other words, once a customer is in the habit of having the same amount of money automatically deducted from his checking account for a loan payment each month, he is less likely to contribute more to pay down the balance faster.

Consumers concerned about their privacy in cyberspace also are reluctant to share their banking account information with another company.

The Justice Department announced a crackdown Thursday against online crime, particularly the practice of “phishing,” in which computer users receive e-mails that look as if they are from a bank or other legitimate business, but are really just vehicles to fool people into sharing their private financial information.

This form of identity theft is soaring.

About 1.9 million people reported that their checking accounts were breached in the past year, accounting for $2.4 billion in fraud, according to Gartner Inc., a technology research firm in Stamford, Conn.

In May, Deloitte & Touche LLP found that 83 percent of the nation’s financial institutions acknowledged that their computer systems had been attacked in the past year, up from 39 percent a year ago.

But analysts stress that this doesn’t necessarily mean that consumers eventually won’t embrace new bill payment methods.

“There was a time when people didn’t want to deal with ATMs. Now no one wants to actually go inside the branch to stand in line,” Mr. McBride said.

But customers have shown that sometimes they do want to talk to real people.

In 2002, Bank One Corp. dropped the $3 “teller fee” it charged customers to talk to a human bank teller.

The fee, introduced seven years earlier, was much maligned, becoming the butt of NBC host Jay Leno’s jokes and sparking calls for a boycott of the bank by some lawmakers on Capitol Hill.

The shift toward new payment methods comes as the banking industry prepares for the Check Clearing for the 21st Century Act, or “Check 21,” which takes effect in late October.

The bill frees banks from having to handle paper checks, giving them permission instead to process electronic images of a person’s original check.

Ms. Hillebrand and other critics say the law will allow checks to be processed in a matter of hours, not days, making it more likely that consumers would bounce checks.

The new law and the shift toward online bill payment will not eliminate the need for paper checks as long as customers still want to use them, said John Hall, spokesman for the American Bankers Association trade group.

“Banks ultimately want to please their customers. The cart is pulled by the horse, and in this case, the customers are the horse,” he said.

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