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Putting your finances on auto-pay can save time and money. Automatic payment of monthly bills helps you avoid late fees. Automatic transfers from your paychecks to a savings or retirement account ensures you pay yourself first — thereby making savings grow faster automatically.
However, if you don’t monitor your finances regularly or scrutinize the fine print when signing up for online accounts, some automatic-payment programs can cost you. And you may not even realize it.
A recent CreditCards.com survey of about 1,000 adults in the U.S. found that 35 percent of consumers have set up an online account that enrolled them in automatic payment without the consumers realizing it. Such accounts include those for streaming video services, magazine subscriptions and gym memberships.
The trouble with automatic payment plans
At issue in the survey findings is what’s known as “negative option” offers or plans, which require consumers to cancel a service or product shipment to avoid recurring charges. As the U.S. Federal Trade Commission describes them, negative-option plans enable companies to ship a product and bill a customer for the good as long as the customer doesn’t “expressly reject the merchandise within a prescribed time.”
Federal laws prohibit companies from tricking consumers into paying for something. Nonetheless, negative-option plans don’t always serve the consumers’ best interests.
Bonnie Patten, a lawyer who serves as executive director of the consumer watchdog nonprofit Truth in Advertising, tells CreditCards.com, “The main reason consumers get caught in these negative-option offers is the material details, conditions and terms are not clearly and conspicuously shown.”
Guarding against unwanted recurring charges
Despite the shortcomings of some automatic payment plans, others are worthwhile. My household subscribes to several services for which we are automatically billed monthly or annually. Those services pose no problem to us, however, because we actively signed up for them and prefer being automatically billed for them — it simplifies our financial lives.
Also, we monitor our bank and credit card statements routinely. You, too, should do this to ensure you catch possible issues like identity theft early. Monitoring statements also will reveal if you are signed up for a negative-option plan, and help you catch charges associated with it.
Reading the fine print when creating an online account is another way to help you avoid such unwanted charges. CreditCards.com explains:
“Many of us are guilty [of] signing up for trial accounts and services online without reading the full terms and conditions — even the ones that don’t ask you to study a 10-page PDF document with small type. But if you’re ever asked to provide payment information to proceed with what you think is a one-off service, it’s critical to find out for sure. There are merchants out there whose business models largely depend on consumers not fully understanding their offer terms.”
As Money Talks News founder Stacy Johnson details in tip No. 4 from “10 Golden Rules to Avoid Getting Scammed,” it’s never fine to ignore fine print.
How do you ensure you’re not being charged for things you never actively ordered? Sound off below or on our Facebook page.