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It's a great idea, in theory: Send cash instantly over the Web. If you love online auctions, money-transfer services like PayPal and EBay's Billpoint mean you no longer have to take chances with money orders. And online bill-payment services like PayMyBills.com and StatusFactory save you from monthly writer's cramp.

But as users of e-payment services have discovered, if something goes wrong with a service that handles your money, you can suddenly feel very vulnerable.

Garth Gregson, a financial controller in Santa Cruz, California, opened a PayPal account when he won an auction for a notebook PC and wanted to pay the seller quickly.

PayPal verified his bank account without a hitch, but it could not verify his credit card. He tried another credit card and got the same error, but this time PayPal restricted his account, which meant he couldn't access it at all. "My credit cards were perfectly valid and my credit is good, so the whole situation made no sense," Gregson says. Unable to find a phone number for customer service on PayPal's Web site, he wrote an e-mail asking how to lift the restrictions from his account.

After a frustrating round of unhelpful e-mail responses, Gregson got a customer service phone number. He called and the PayPal representative essentially told him that he was out of luck. "Once PayPal declines a credit card, it's declined forever--no questions asked or answered. I couldn't even close the account, since it had been restricted," Gregson says.

Gregson ended up sending the notebook seller a paper check, and PayPal eventually closed Gregson's account for him. PayPal officials won't comment directly on Gregson's case, but they say a credit card may be declined for many reasons--from the card issuer's address verification system being down to a customer's card having been frozen.

Gregson still bristles at the experience. "I was incredulous at [PayPal's] lack of customer service," he says. "I'm particularly bothered that I gave my financial information to a company that shows such indifference to its customers."

Unfortunately, it isn't terribly surprising to hear that a customer has received lousy service from a Web-based company. What sets PayPal and all other online bill-paying services apart is that they have access to your most sensitive financial information. And besides having your credit card and bank account numbers, they can take money directly from your checking account. When you can't get a straight answer from a company wielding that much power over your finances, you tend to get a little nervous.

Another example involves Jane Dwyer of Walden, New York. "I signed up with PayMyBills.com thinking it would do just that. But it didn't turn out that way." Dwyer says her bills got paid up to three weeks later than she expected.

Paymybills.com representative Laurel Cecila asserts that the payments weren't truly late. Cecila says PayMyBills doesn't take cash from a user's account until a payee actually cashes their check. That policy makes some users suspect their payments were made late, she says.

But Dwyer says that some companies charged her fees for late payments.

Confusing matters further, many electronic-payment services look and act like banks--PayPal and its partners even offer ATM/debit cards, and a money market fund for accounts that hold a balance. But what looks and acts like a bank isn't always a bank. For instance, money kept in accounts at PayPal and other money-transfer services like Yahoo's PayDirect is not insured by the Federal Deposit Insurance Corporation, the agency that insures checking and savings accounts at banks.

Does that mean you should think twice about going online to pay your bills or to transfer money? Not necessarily. Chances are, you'll never have a problem. If you do, and your payment site is affiliated with a regulated financial institution--as the online bill-payment programs at most banks are--you'll be covered by the institution's own customer-protection policies, as well as by various state and federal consumer-protection laws.

But there are good reasons for caution in choosing and using an online payment service. I'll outline some of the concerns and then give you a few tips for picking a trustworthy bill-paying operation.

PayPal, which at press time said it had 10 million account holders, has struggled with some sticky customer service problems since launching in October 1999. First it was broadsided by online-auction users, who opened accounts faster than the fledgling company could serve them.

Then the crooks moved in. "Online payment services are attractive targets to thieves with stolen credit card numbers," says Vince Sollitto, PayPal vice president of corporate communications. "Typically these fraudsters operate by setting up accounts using stolen numbers, sending payments to other accounts [they control], and withdrawing the money."

In an aggressive effort to control fraud on the site, PayPal administrators froze access to many accounts that they suspected were linked to fraudulent transactions. As a result, lots of legitimate PayPal users found themselves suddenly locked out of their accounts. Naturally they were furious, especially when they received only canned e-mail responses to their queries. "PayPal effectively held my money hostage, and I couldn't do a thing about it," writes one former PayPal user, who asked not to be named.

PayPal has all but eliminated fraudulent transactions and has improved detection of possible cases, Sollitto says. "As we've gotten more sophisticated in our [antifraud] efforts, we've been able to substitute a scalpel for the meat cleaver," he says.

PayPal isn't the only e-payment site that's stirred up customer dissatisfaction, of course. I've received complaints from users of most major online payment sites regarding late payments, errors in payment amounts, unresponsive customer service, poor-quality documentation, and confusing customer policies.

So if no e-payment site is problem-free, how do you know which to choose? Here are some points to keep in mind:

Stability: Since consumer-protection laws covering e-payment sites are shaky, you want a service that won't disappear.

"Look for a site sponsored, owned, or endorsed by a regulated financial institution or credit card company, or by a recognized Fortune 500 company," advises attorney Mike Nugent, who heads the New York law firm Heller Ehrman's financial technologies group. Paul Jamieson, director of banking and payment services at research firm Gomez, agrees. "There's always less risk in going with a trusted brand. Also, be sure to read the fine print. It can be tough to slog through all those terms and conditions, but you need to know your rights before you sign on."

The site should post physical addresses, phone numbers, and names of principals. Find out how long the site has been in business, and research the company's history at the Better Business Bureau Online.

Customer service: Ideally the site will offer 24-hour, seven-day toll-free telephone support. If it doesn't, e-mail a test question, and see whether you get a quick and accurate reply.

Security: Make sure the site uses 128-bit encryption; and don't divulge any information that's not absolutely required.

Fraud prevention: Some payment sites provide free insurance coverage and/or fraud-protection policies, but in the end most make no promises. Keep in mind that when you charge a purchase or payment to your credit card using an e-payment site, your credit card company may or may not pick up the tab if the purchase goes awry. I've heard from consumers who have had both experiences.

Customer feedback: Check out comments at sites like Epinions.com, EComplaints.com, and PlanetFeedback.com.

An online payment site can make paying bills more convenient. Just be sure that the service you choose will be there for you if something goes wrong. After all, your money is on the line.

Anne Kandra is a contributing editor, Grace Aquino an associate editor, and Andrew Brandt a senior associate editor for PC World.