Updated on 11.08.10

When Customer Service Goes Awry

Trent Hamm

Recently, the credit union that handles our home mortgage had a bit of an issue. They called us up to inform us that our homeowners insurance had been cancelled, which was incredibly awkward considering we pay into an escrow account for our insurance and our insurance payments are taken straight from that account. What happened? The credit union claimed that the insurance company never billed them (they require paper bills). The insurance company claimed that they billed the bank. And I’m the one caught in the crossfire with a lapse in my homeowners insurance.

Here’s the disturbing part – this exact thing happened once before.

(To say I was upset is an understatement.)

Clearly, there was a problem somewhere in this system. Was it the credit union’s fault due to some mishandling of the bill from the insurance company? Was it the insurance company’s fault due to a bill that was never sent?

It’s impossible for me to know which group was at fault. If the insurance company did bill, then it’s the credit union’s fault. If they didn’t bill, then it’s their fault. (I have received copies of the bill along the way, which instructs me that the lender is also being billed and that my insurance payment will be made from my escrow account.)

Whenever something like this happens in your life – and it will eventually happen with something – I recommend following a series of steps to resolve the situation.

Attempt to figure out where the problem occurred. In the situation above, the closest I can come to figuring out where the problem actually occurred was in that billing cycle. If nothing else, I can say that the credit union wasn’t proactive with regards to the escrow account – there should have been some sort of earlier flag that indicated that an insurance payment hadn’t been made before the point of cancellation was reached.

If a problem like this occurs with you, spend the time to figure out what caused the problem to happen in the first place. Contact all involved parties and determine, to the best of your ability, the specific thing that went wrong in the transaction.

Minimize the number of players. Once you’ve figured out what went wrong in that transaction, you should seek to minimize the number of players involved in the transaction if at all possible – and if you cannot, look for a way to change the players involved in this transaction.

In my own situation, I sought to eliminate a player from this transaction – namely, the holder of my mortgage. I requested permission to pay for the homeowners insurance directly without using their escrow account and, given the situation, the credit union quickly approved this request. This made the transaction for my insurance occur between just myself and my insurer.

Minimize the potential avenues of failure. Another potential avenue for failure in this equation is human error. Assuming that the credit union was receiving the bills, human error was causing the bill to remain unpaid. One way to minimize future potential problems is to simply minimize the number of ways in which human error can fail.

One method of doing this is to simply have direct deposit billing, in which the correct amount is withdrawn directly from your checking account. Once I had control over the payments for my homeowners insurance, I signed up for this form of billing so that human error – a lost piece of mail, etc. – wouldn’t result in a lapse in my homeowners insurance in the future.

These tactics go beyond resolving problems. They’re good tactics for every significant financial transaction in your life. Minimize the number of players. Minimize the potential avenues for problems. Taking those simple steps can reduce the amount of regular effort you need to put forth while also minimizing the chances of such a mistake.

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  1. Aryn says:

    I’ve heard so many stories like this that I really think escrow accounts should be done away with! It may be more convenient for some people, but the risk of a bank screw-up significantly affecting you is much greater, too.

  2. Marle says:

    I’d be so mad. It is the credit union’s fault, whether the bills got to them or not. If I didn’t get a bill for my car insurance, I would be calling them up to find out why, not just ignoring it until it gets cancelled, and if I did forget about it I would expact to have to pay late fees and whatever to get it reinstated. I would expect a credit union to be more responsible about their bills than me. If they’re getting money every month from you for homeowner’s insurance and not paying an insurance company, they should be on that to figure out why. Almost all mortgages require homeowner’s insurance, so why couldn’t they call up the insurance company and straighten things out? Or, when the insurance company called them why couldn’t they have straighten things out then and there without putting you in the middle?

    If I had that experience, *twice*, I would want to switch to another company. Unfortunately, that means refinancing in this case, which isn’t always practical. Still, I would be mad and consider switching to a different bank for checking or savings or credit cards if you have that with this credit union.

  3. Kathryn Fenner says:

    If at all possible, avoid T&I escrows. They are noted for such glitches, and for overwithholding. Since we are all grownups here, set aside money for taxes and insurance in an account bearing interest and keep the interest!

  4. Sara says:

    Unless you have huge self-control issues (which granted, readers of PF blogs might), paying into an escrow account is a waste. Not only do you lose any interest that may accrue on your property tax, homeowners insurance, or whatever dollars, you have the potential for problems like this one! When I am mortgage shopping I make sure to ask if they require escrow, and if they do I make sure to get the requirement waived.

  5. Telephus44 says:

    Quite honestly, this is why I chose a local bank to hold my mortgage. I have twice had issues with taxes (my backyard is a separate parcel, with a separate tax bill) and both times I have been able to resolve the issue with one phone call and it’s fixed the next day.

    Our bank requires escrow for taxes until you have 20% equity, then it becomes optional. I guess that they want to make sure that they taxes get paid. For whatever reason though, our bank will not escrow for insurance.

    Also – to the Sara in comment #4 – we do get paid interest on our escrow account. Mind you, it’s only a whopping $10 per year or so, but we do get paid interest on it.

  6. Kristen says:

    Another aspect of this is that it pays to pay VERY close attention to your mortgage statements. I’m lucky in that my insurance bill gets paid on my anniversary every year, but you bet that I’m online within a day to check to be sure that my mortgage/escrow account was debited for the correct amount. There’s a short grace period before my insurer would cancel coverage, and it’s wise to verify payments during that timeframe so that you can address problems before they result in a cancellation of coverage. We had a plumbing problem that resulted in over $70,000 in damage to our townhouse, and I will never again take my homeowner’s insurance policy for granted.

  7. Marsha says:

    This exact thing happened to me years ago, when my mortgage was sold and I got a new mortgage processor. The new company totally screwed up the escrow account, and did not pay the insurance bill. First I knew of it was the cancellation notice sent by the insurance company. I had to pay the insurance company out of non-escrow funds immediately, and it was a fight to get the excess money out of my escrow account. Unfortunately, I was unable to get the mortgage processor to agree to let me pay T & I independently.

  8. chacha1 says:

    How infuriating. This is one of those things that I file away in my brain for the distant day when we own property … *I* want to be the one responsible for paying, whether it’s property tax or homeowner insurance. I just trust me a lot more than I trust anyone else, when it comes to taking care of MY business.

  9. valleycat1 says:

    Trent – you say a way to avoid this situation is to “have direct deposit billing, in which the correct amount is withdrawn directly from your checking account.” To a point – it doesn’t absolve you of the responsibility of making sure that payment actually is transferred.

    We had direct billing set up for one of our utility accounts, & for some reason at some point their payment request to the bank didn’t work; I admittedly wasn’t checking the monthly bill since it was a fixed amount, so several months down the road we got a notice that services were being cut off due to nonpayment/being in arrears. So now I verify every automatic payment every single month for each account we use that for. That’s easier these days, with online access to my bank account & confirmations emailed to me when bills are due and payments received.

  10. Dear Trent,

    I wish you’d be more honest about your feelings towards certain situations. I think you are holding back so as not to offend people by saying what’s really on your mind and you limit your capacity to accurately reflect human emotion. You sound a bit “digital”, like a robot. “Here’s the disturbing part…” That it’s happened before isn’t really disturbing…waking up in the middle of the night to see your dead grandmother crawling up your leg with a knife in her teeth…that’s disturbing. Frustrating, irritating, annoying are all maybe more accurate descriptors. “To say I was upset is an understatement.” Okay, so why not just say how you felt? The proper use of raw words provokes a response from the reader in which they can feel your emotions isn’t such a bad thing.

    I’ve realized that I’ve been doing the exact same thing on my own blog and I felt like I was stifling my ability to convey my message, to show my passion about something, to properly vent my frustration or disgust. Your writing style comes across like someone who’s been chastised one time too many and you’re afraid to offend…and it limits you. If you haven’t taken notice, there are numerous comments about your repetitive usage of the same few words and phrases. You’re limiting yourself.

    As a writer, I would think that you can appreciate words and the power they carry and would choose ones which can carry your emotions through cyberspace. As it is now, almost every article I’ve read here recently has felt awkward and stunted.

    Sorry for being WAY off-topic but this has been bothering me recently.

  11. Nick says:

    You handled it with a much cooler head than I would’ve.

    I would’ve tried to bring charges of fraud against both the credit union and the insurance company. If they are going to just point fingers at each other then they can have a plague on both of their houses.

    If that didn’t work, I would file BBB complaints against each. Frankly, what they did is terribly unprofessional and neither organization should be in business if they’re going to play games like that.

  12. Amanda says:

    Well put Steven.

  13. Susan says:

    Thank you Trent for your post. I thought the tone of your post was just fine.

  14. marta says:

    Steven, but what if that’s how he really feels? Trent may think that *any* food he makes in his kitchen is “sublime” or “mind-blowing”, or that any annoying situation such as the one described above is “disturbing” or that a regular inconvenience is “disastrous”. And he may very well be “passionate” about anything from honing a knife to making homemade laundry.

    Not that I agree with these descriptions at all, but some people are just big drama queens.

    The main issue I see with the over-use of hyperboles is that words lose their impact at some point.

  15. marta says:

    Back to the topic: I don’t get the point of an escrow account. It seems to be a convoluted system.

    My insurance company is affiliated with my bank, and whenever it’s time to renew, I get a couple of notices in my mail beforehand and then an automatic debit from my regular account (same where my mortgage payments are debited). No muss, no fuss.

    Of course, as with any other automatic debit, I always check my statements to see if the money was actually taken out from my account. *All* my payments are automated, but as I’ve said before, it doesn’t mean I’ll ignore bills or bank statements.

  16. marta says:

    Sorry, I meant “homemade laundry *detergent*”.

  17. sandycheeks says:

    Due diligence as a property owner means making sure that your taxes and insurance are paid.

    Escrow acounts are marketed as a convenience to the “homeowner” but are really designed to protect the bank.

  18. RLS says:

    The only automated payment I currently have is my car payment, and that’s because I had no choice in the matter. I don’t like automated payments, primarily because I don’t like allowing direct access to my chequing account. I want to control who, and how much, I pay. Now, to be fair, I’m organized and never miss payments — I know other people like the freedom of not worrying about it. YMMV.

    I don’t know of any Canadian banks that will handle your house insurance. Many people I know do handle their property taxes through the bank, and a similar situation happened to both my partner and my father at one time or another. The bank didn’t receive the proper documentation from the province and therefore didn’t pay any property taxes. Not as serious as allowing home insurance to lapse, certainly, but frustrating. When I buy a house (very, very soon!), I plan to handle it all myself. Good reminder, Trent!

  19. And, I might add, don’t give up, don’t ever give up.

    Fight and fight and fight until you’re satisfied that you’ve been penalized not at all for all of these mistakes which weren’t your fault.

  20. Randy says:

    Thanks for the article and thanks for your attitude. I see a lot of commenters who wanted you to get upset, but I hope I would follow the same path you did. Getting upset and yelling doesn’t solve the problem, getting rid of escrow did (in this case). Now it’s your responsibility.

    I encourage escrow for most people as they frequently come up surprised at Christmas, how much worse would it be for insurance or taxes. Not everyone can have the self control it takes.

    One request for future blogs – similar to this one – how would you handle other mistakes? A company that overbills? A statement of debt owed that is incorrect? (I’ve had both of these). Just getting mad and walking away from the company or threatening lawsuit doesn’t really solve the problem and probably elevates your blood pressure (increasing medical bills).


  21. Rachael says:

    This has happened to me several times. The best is when the bank pays the insurance then sends me a letter that the home equity loan with the same bank is not insured and I have x amount of days to find homeowners insurance. Both times it took several phone calls to make the bank understand that the house with the escrow is the same house as the equity loan. As soon as possible I dropped the escrow and haven’t had a problem since.

  22. Michele says:

    I’ve always paid my Homeowner’s Insurance monthly, either a check by mail or more recently, online…the only time I have had a problem is when the stupid mortgage is sold and I have to go through the rigamarole of having my insurance agent fax a copy of our policy and stating we’ve had insurance continually throughout the mortgage.
    I’ve never had an escrow account so maybe that’s why I haven’t had this painful situation. Oh and having an Insurance Agent who has an office close by and plays hockey with my husband doesn’t hurt, either. Our rates are very low, we are with a national company with top-notch service (State Farm)and the rates are even better than USAA, Geico, Progressive and Allstate for our situation. (Home, Life, 3 vehicles, boat and student renter in college)

  23. Stephanie says:

    Can you decline having an escrow account and pay the bill directly yourself? My bank didn’t give me a choice in the matter…

  24. AnnJo says:

    Wherever possible, I have recurring payments set up for auto-pay from a credit card, and then auto-pay the credit card bill monthly from my bank account. This gives me an extra month to catch possible errors before my money is committed, fewer creditors with direct access to my bank account, and tons of frequent flyer miles. The bank account is linked to a line of credit for overdraft protection, just in case there’s an error in processing a bank deposit. This all minimizes the chances that a mistake by me or someone else will cost me money.

    All that being said though, I’m grateful for the fact that mistakes by banks and creditors are, in fact, few and far between considering the volume of transactions handled. Yes, they are annoying when they happen, but keeping things in perspective means that minor annoyances shouldn’t ruin anyone’s day.

  25. Goody says:

    Thanks for the alert. The last few years I’ve been checking to make sure my property taxes are paid but I never bothered with my homeowner’s insurance. Now, I’ve marked in my electronic calendar to make sure it’s paid when it comes due next year. Like someone else said, you can bet your a$$ I would have screamed bloody murder if that had happened to me, and heads would roll, I assure you. That’s what the Attorney General, the ABA (and as a last resort the BBB) are there for: to protect the consumer from incompetence and what should be a completely professional field. Due diligence also applies to credit unions and insurance companies!

  26. Sue says:

    Trent, excellent post. Actually, I’ve heard this happen before too. Seems escrow accounts are becoming outdated w/new banking trends–downsizing of personnel at banks, as well as poss lack of detailed security training of those overseeing these many ‘automated’ tasks that are set-up to handle these accounts. Made me think in the IT/Cisco world–they would probably interpret the ‘missing link’ as a form of ‘route poisoning’ (LOL)As mentioned above,in ANY industry, due diligence will always remain extremely important.

  27. lmoot says:

    I just went an called my mortgager to begin the escrow terminating process. I’m over 20% equity and no late payments, which were the only requirements. I just have to wait until the taxes are paid this November and I’m FREE! Which is perfect timing as I just opened and ING orange savings account so I can start a sub-account for taxes and insurance and start earning interest immediately.

  28. Paula Kastelec says:

    Im a frugal person and wont pay someone to do something I can do myself.
    I pay my own property tax and homeowners insurance myself.I estimate the yearly total for both plus a little extra.Each month I put this money in a safe place at home .I also do this for my dogs meds.,check ups etc.
    I save stamps by paying them , when due, locally.
    I budget everything, even an emergency fund for unexpected surprises.
    My husband and I have made a game of this over the years and we constantly think of new ways to save money on things….

  29. Sam says:

    One of the best things I did when I got my house was I was adamant about no escrow.
    It’s been great – makes shopping around for insurance easier since it’s easier to switch… and I’m responsible for the payment not some bank computer.

  30. Mule Skinner says:

    I had a similar situation earlier this year. Instead of giving me a paper prescription, my clinic insisted on sending it to the pharmacy electronically.

    Pharmacy said they didn’t get it; clinic said they sent it. Repeat. Both of them were talking to me and not to each other.

    Finally got the pharmacist to phone the clinic, which said “Oh? Why, we’ll just send it again.”

    (Pardon my “French”: %&#*@!)

  31. Dave says:

    I had this happen to me too, my mortgage company was paying the insurance and didn’t then sent me a nasty letter saying if I didn’t get new insurance they would consitter that grounds to foreclose, or I could use their insurance at 5X what I was paying, new mortgage company and new insurance that I pay. With the first company, when I get the mortgage I was told I had to use an escrow, the second one asked if I wanted one.

  32. Donna says:

    I disagree that it was primarily the bank’s fault. The insurance company should have contacted the homeowner directly prior to canceling the insurance for non-payment, especially since the payment was late coming from an escrow account.

  33. CW says:

    Excellent way or handling this… thanks for sharing.

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