Automatic payments can be convenient. You don't have to think about it. The money comes out of your account each month, on time.
That's fine if you know it's happening and have planned for it. And, more importantly, have agreed to it.
But in more cases than you might think, consumers get signed up for auto pay programs without their knowledge. According to a survey by CreditCards.com, it's happened to 35% of consumers.
It mostly happens when you sign up for a service that carries a recurring charge, like a cellphone or gym membership. In the paperwork process, you most likely listed your bank or credit card information. To your surprise, the payment is automatically withdrawn.
The CreditCards.com survey also suggests that when consumers discover they've been enrolled in auto pay, they aren't happy. Only 11% decide to keep the auto pay turned on while the rest take action to turn it off.
Fewer than half say its easy to turn off
And turning it off isn't always easy, the survey found. Fewer than half -- 47% -- said it was easy to go back to manual payment.
One problem with being unknowingly enrolled in auto pay is consumers also end up continuing to pay for a subscription or service they thought they had ended.
“Bottom line, it’s important to read the fine print when you’re signing up for a new subscription or service,” said Matt Schulz, CreditCards.com’s senior industry analyst. “Unplanned recurring payments can wreak havoc on your budget and your bank accounts.”
One source of surprise auto pay enrollments is the free trial. A consumer is offered a service for a short time at no charge, but is enrolled in an ongoing subscription unless they cancel within a specified time. In the past, some companies offering free trials went out of their way to make it difficult to cancel.
In nearly every case, the company offering the free trial obtains payment information from the consumer, which should serve as a tip-off that a surprise enrollment in an auto pay plan is a distinct possibility.
That, of course, falls under the definition of negative option -- meaning the seller has assumed a sale unless the consumer takes action, exercising the "negative option," ending the sale. This was a significant problem in the early 2000s and CreditCards.com says the regulation dealing with it is now largely ineffective.
“The negative option rule … has to do with old ‘book-of-the-month club’ issues and a very specific type of negative option that we normally don’t see anymore,” said James Kohm, director of the Federal Trade Commission's (FTC) enforcement division.
The best way to avoid auto pay surprises is to read contract language carefully when you sign up for a subscription service and limit business dealings to well-known and reputable companies.