From: Robin T Cox 
Subject: Paying bills by cheque can be expensive
Newsgroups: uk.finance
Date: Sat, 02 Jun 2007 14:41:05 GMT

Paying bills by cheque can be expensive

By Ian Pollock
Personal finance reporter, BBC News

http://news.bbc.co.uk/go/pr/fr/-/1/hi/business/6429903.stm

Published: 2007/03/12 08:21:40 GMT

Why should I be charged more for paying a bill by cheque or cash rather
than direct debit?

That is the question being asked by an increasing number of customers of
big organisations such as BT and the newly enlarged Virgin media empire.

From 1 May, BT will levy an increased charge of £4.50 a quarter on people
who pay their bills by cheque or cash.

And Virgin charges £5 a month as a so-called administration charge for
customers who do not sign up for direct debit payments.

The average payment by Virgin customers is just £43 a month for their
cable TV, phone and broadband bills.

Squeezing customers

The suspicion is that this is just a way of squeezing more money out of
customers and that these charges bear little relation to any real extra
cost involved.

"That is not fair and (it is) time action was taken to stop
multi-nationals bullying their customers into submission," complained Alan
Pelling of Eastbourne, a BT customer.

Like millions of other people he discovered the raised charge when he read
BT's Update leaflet that came with his last bill.

Don Wood from Lincolnshire contacted the BBC web site to complain that
this would be a particular problem for pensioners in rural areas.

"It's disgusting," he says.

"In my village many old people don't have bank accounts. They rely on the
small post office," he added.

Support for such scepticsm comes from David Llewellyn, professor of money
and banking at Loughborough University.

"I am pretty sure the Virgin figure has no relation to the true cost," he
said.

Virgin and BT

Virgin's £5 a month processing charge is paid by about 1.5 million of its
customers.

"The cost reflects our processing costs," said a spokeswoman.

But she did acknowledge that "some of it will be an incentive as well to
encourage people to move to direct debit."

BT points out that customers who are paying via cheque or cash are not, in
fact, going to pay an extra £4.50 a quarter.

Until now those who were paying via direct debit or a monthly payment plan
had £1 a month knocked off their line rental.

That discount will now apply to all customers.

So the net increase to the cheque and cash payers is just £1.50 a quarter.

"Effectively, we are replacing an existing discount with a charge, which
results in a 50p a month decrease for some customers and a 50p increase
for others," said a BT spokesman.

"The charge will not apply to customers on our Light User and In Contact
Plus social telephone schemes," said BT .

Costs and savings

Even so, now that the line rentals are aligned, £4.50 is the apparent
extra cost of paying by cheque or cash every three months.

BT will not reveal exactly how it arrives at that figure.

It claims that the processing fee covers not only the charges made by its
own bank, but also its in-house processing costs and also the charge made
by post offices, which also accept BT bill payments.

"We believe it is a fair and reasonable charge and is amongst the lowest
such charges," said BT.

An automated payment process, such as direct debit, is cheaper to run, for
both banks and their corporate customers, than one that involves people
opening envelopes and counting figures on bits of paper.

It also saves money on chasing customers who fail to pay on time, or
indeed at all.

But teasing out the real costs of processing cheques or direct debits is
not easy.

BACS, the inter-bank money transmission service, will not reveal the basic
cost per item it charges to the banks.

And the banking organisation Apacs (Association for Payment Clearing
Services) says there are no current, meaningful, average costs for the
banking industry as a whole.

Back in the mid-1990s it carried out some research on the cost of money
transmission in the UK.

At the time it came to the conclusion that the cost to a bank of
processing a cheque was 44p and that of a direct debit was 21p.

Locking you in

Direct debits were first introduced in 1966.

In the mid-1990s British Gas became the first organisation to offer
customers a discount for paying by this method.

But there are reasons, other than cost and convenience, that make this
payment method attractive for service companies, like utilities, with lots
of customers making regular payments.

Professor Llewellyn says the evidence is that people who pay this way are
less likely to move to another supplier.

"Direct debits are inclined to lock you in," he said.

"And if the money has already been deducted you have no bargaining power,"
he added, suggesting that companies that prefer direct debits as a method
of payment should be wary of charging too much.

"This is very comparable to penalty charges being charged by banks, which
the Office of Fair Trading said should be related to cost," pointed out
Professor Llewellyn.

"I am pretty certain these charges are not," he warned.

Some customers are clearly not convinced that these non-direct debit
charges are fair, and neither are some MPs.

An early day motion, a traditional expression of back-bench opinion,
criticising the new BT additional charge, has been signed by 77 MPs.

So far, the telecoms regulator Ofcom is fairly relaxed about the issue.

"We have looked at this," said a spokesman.

"The main option is to leave BT as there is competition these days, people
are free to leave if they want," he pointed out.

But Ofcom has said it would monitor the effect of these charges and if it
gets a deluge of complaints then it will look again.