Cash or Charge? - financial services and Year 2000 computer bug - Brief Article

Kiplinger's Personal Finance Magazine, Nov, 1999 by Joan Goldwasser

Will your credit card, ATM card and other e-transactions work? Probably, but take a few precautions, just in case.

If the year 2000 had come and gone ten years ago, much of the fretting about the Y2K bug's effect on financial services wouldn't be happening. In the past decade, transactions have gone high tech. Now we pay with a credit card at the grocery store, the gas pump and even the movies. We have our paychecks automatically deposited and our mortgage payments automatically debited. We rely on ATMs for what little cash we use. We log on to the Internet to check our bank statements and to pay our bills.

Being so wired financially makes us worry. Last spring, more than two-thirds of those surveyed by Brittain Associates, a marketing-research firm, expected Y2K to cause them financial problems. To protect ourselves, says the firm's president, Bruce Brittain, we'll hoard an average of $1,000 cash per household--for a total of $32 billion.

Fortunately, the financial-services sector has been feverishly preparing for the year 2000. That doesn't mean that every computer system will work perfectly. But problems that do arise should be corrected quickly.

Scattered, temporary power failures that leave computers unable to function are more likely than a meltdown within the financial-services industry (see the next section). A power failure would shut down ATMs as well as the systems that authorize credit card purchases and okay handwritten checks. Even if power is uninterrupted, phone troubles could paralyze credit card authorizations.

You'll be prepared to fight any glitches--and any resulting errors--if you nave up-to-date paper records of all your accounts. List all the account numbers and keep a paper trail until well into the new year. Also, get a copy of your credit history from each of the three major credit bureaus--Equifax (800-997-2493), Experian (888-397-3742) and Trans Union (800-888-4213)--so you have a pre-Y2K record in case problems crop up.

In the positive-spin department, Minneapolis financial planner Jan Holman calls this a once-in-a-lifetime chance to get your financial life in order. You ought to have a list of all your credit cards anyway, right? And when did you last check your credit record?

BANKING

Banks, thrifts, credit unions and the networks that process payments have spent several years and millions of dollars planning, testing and renovating their computer systems so that deposits and withdrawals will be recorded and interest will be calculated correctly.

Testing and retrofitting computer systems is almost finished. Ninety-nine percent of the institutions inspected by federal regulators passed with a satisfactory rating (the highest possible). A minuscule nine out of 21,000 institutions examined got "unsatisfactory" grades.

The Federal Reserve Board announced that it will put an extra $50 billion in circulation and will have more than $200 billion in its vaults to cope with the demand. Banks will be staffed to refill ATMs as needed and will have extra bodies on hand to do things manually--the old-fashioned way--if computer or electrical problems crash the ATMs.

Extra precautions, just in case:

* Keep ATM receipts and deposit slips, and carefully track your checkbook well into the new year so you can check transactions on your January and February statements. If you use direct deposit for your paycheck, make sure your first check of the millennium gets into your account on time.

* Although the Federal Reserve Board is counseling consumers to leave their money where it is, you should have enough cash on hand to cover expenses over the long weekend. If Y2K anxiety convinces you to withdraw more than that, consider converting it to traveler's checks for safekeeping.

If you're planning to pull out really big bucks, keep the cash in a safe-deposit box. Access to safe-deposit boxes should not be affected because most vault timers are mechanically controlled and are not date-sensitive.

CREDIT CARDS

More than one billion credit cards with expiration dates in the year 2000 or beyond are already in use, so it's unlikely you'll have trouble using these cards come January 1. MasterCard, Visa and American Express have worked with card-payment processors and the manufacturers of the terminals that authorize purchases to iron out potential problems. Credit card authorizations for key dates have been successfully tested by a consortium of telecommunications manufacturers and carriers that transmit data.

To be on the safe side, if you're going to transfer a balance from one card to another, do it soon--or wait until mid January. The process can take several weeks. And carry a backup card with you on New Year's weekend.

BILL-PAYING

Most of the places where you pay bills--banks that issue credit cards, other lenders, utilities, your insurance company--have tested and retested their bill-processing systems. The wild card is small businesses--doctors and dentists, the plumber, the lawn-care company--whose systems may or may not have problems.