TOP DRAWER ARTICLE

Electronic Check Conversion
by
HL Carpenter

What was the mysterious slip of paper that fell out of last month’s credit card statement? Did you toss it without reading the fine print? Then you may have missed a notice advising you of a change in the way your payment would be processed if you sent a personal check.

The change will show up on your next bank statement, when the check you mailed to your credit card company is listed as a separate item under ‘electronic fund transfers’.

What’s going on?

Simply put, your paper check was converted into an electronic, or ‘e’ check. Once converted, the payment is routed through the banking system in a manner similar to Automated Clearinghouse (ACH) transactions. You’re probably more familiar with ACH in the form of direct deposits, such as payroll or Social Security checks. Check conversion is also similar to Check 21, a new federal law that goes into effect on October 28, 2004.

To accomplish the conversion to an e-check, your signed paper check is scanned for information and used as authorization permitting conversion into an electronic transaction. The original check is then voided and destroyed.

Because the paper copy ceases to exist, cancelled checks will no longer be sent back to you - making it more important than ever to examine your bank statement. Why? According to the Federal Trade Commission (FTC), you must call your financial institution within two days to limit your liability to $50 when you spot mistakes or unauthorized transfers. If you report the problem within 60 days, your liability rises to $500. After that time frame, your potential liability is limited only by the amount of money in your account.

Businesses like e-checks because they have faster access to your payment. In most cases, funds are transferred from your account to the company you are paying within 24 hours. The caution for you: be sure the money is available when you write the check. Otherwise you may incur charges similar to bounced check fees.

Not sure e-checks are such a good idea? If you’d rather opt out, you can contact the merchant or company you do business with and ask them to return you to your former method of payment. The two merchants we called were happy to comply.

Originally published August 2004.

Last update: January 8, 2011