E-Checks (Electronic Check Conversion)

The next time you write a check to your local merchant, the cashier may hand it back to you after it's been processed - electronically. Or maybe you're mailing a check as payment to a company. That payment, too, may be processed electronically. Why? More merchants and companies are using e-checks, also known as electronic check conversion, which converts a paper check into an electronic payment from your bank account. In fact, NACHA - the Electronic Payments Association - estimates that 167 million paper checks were converted into e-checks through in-store transactions in 2002.

How does electronic check conversion work?

When you give your check to a store cashier, the check is processed through an electronic system that captures your bank account information and the amount of the check. Once the check is processed, you're asked to sign a receipt and you get a copy for your records. When your check has been processed and returned to you, it should be voided or marked by the merchant so that it can't be used again. The merchant presents the processed check to your bank or other financial institution electronically, and the funds are transferred into the merchant's account.

Electronic check conversion also is being used for checks you mail to pay for a purchase or to pay on an account. The merchant or company sends your check through the electronic system, and the funds are transferred into their account.

How will I know if companies I do business with use electronic check conversion?

By law, you must receive notice if your check will be processed electronically. Notice can be given in different ways: In a store, a merchant might post a sign at the register or give you a written notice. For a mailed check, the company might include the notice on your monthly statement or under its terms and conditions. The notice also should state if the merchant or company will electronically collect from your account a fee - like a "bounced check" fee - if you have insufficient funds to cover the transaction.

Will I get my checks back?

Your financial institution may be unable to give you a duplicate copy of your checks, so it's important to keep your checks - and receipts - that have been processed electronically in a store, especially if you need proof of payment. In the case of merchants and companies that use electronic check conversion for your mailed checks, you won't get your check back because it was transmitted through the process only electronically. However, if you need a copy of the check they processed, you can always ask the merchant or company if they'll provide it to you.

Will the electronic payment be shown on my monthly bank statement?

Yes. Your bank statement must show the electronic transaction. It should include the name of the merchant or company, the payment amount, and the date the payment was electronically transferred from your account. This information may be included in an area other than where your paper checks are listed, so carefully review the entire statement. It's important to keep your bank statements; they can be used as proof of payment for your transactions.

What does electronic check conversion mean to me?

There may be no float on your check. That means, if you write a check today, you need to have funds in your account today to cover it. If you don't, your check may bounce and you may be charged a fee by the merchant, your financial institution, or both. Bounced checks can blemish your credit record. If you're concerned about bounced check fees, you may want to consider overdraft protection or a backup line of credit on your account. Be aware, your financial institution may charge for these services.

What if I find an error on my account?

Promptly review your bank statement for errors. For example, did two electronic payments go through instead of one? Were you charged the wrong amount for the item purchased? You have 60 days from the date your statement was sent to you to notify your financial institution of any errors. Your financial institution might take up to 45 days from the date you notify it to investigate the situation. In most instances, if it will take more than 10 business days, your financial institution must credit your account while it investigates the error.

What if I find unauthorized electronic transactions on my account?

If you find unauthorized electronic transfers on your account (or someone has fraudulently obtained your banking account information), notify your financial institution immediately. Your level of loss depends on how quickly you report the problem.

Under federal law, if you report the loss within two business days of discovery, you won't be responsible for more than $50 in unauthorized transfers.
If you fail to report the loss within two business days, but report it within 60 days after the statement containing unauthorized transfers is mailed to you, you could lose up to $500.
If you fail to report the unauthorized transfers within 60 days after your statement is mailed to you, you risk losing all the money in your account and the unused portion of your maximum line of credit for overdrafts.

Contact your financial institution about any additional limits on liability.

Keeping Close Tabs on Your Account

The Federal Trade Commission suggests that you:

Keep track of deposits. Make sure you record all deposits to your checking account in your checkbook immediately. When you make deposits, save the receipts. They can help resolve mistakes.
Remember to record all automatic or Electronic Fund Transfer (EFT) deposits, such as your paycheck, in your checkbook when they're credited to your account.
Keep track of withdrawals. Immediately record your transactions. This includes: checks you write; ATM withdrawals; all automatic payments, including electronic check conversion, debit card payments at the point of sale, and other direct payments; and fees or service charges, including ATM fees.
Promptly balance your account when your statement arrives. This means reconciling the information you have recorded in your checkbook against the statement your financial institution sends to you. Review your entire bank statement; checks processed electronically may be recorded in an area other than where your paper checks are listed, such as under "other withdrawals."
Review your statement to be sure checks were only processed electronically once and for the correct amount. If your account won't balance, and you can't find the error, promptly call your financial institution for help.
Be especially careful with telephone transactions. If a merchant or company lets you make a payment by e-check for a phone transaction, they should notify you that they will process your payment electronically. They will then ask for your bank and checking account numbers as they appear at the bottom of your check, and for permission to charge the account for the item you're paying for. Your transaction will then be processed and the funds withdrawn from your account and deposited in the merchant or company's account electronically.
Be especially cautious about sharing your bank and checking account numbers. Do not give out personal information on the telephone unless you have initiated the contact or know who you're dealing with. Scam artists can use your personal information to commit fraud - such as identity theft. That's where someone uses your personal information, such as your checking or credit card account number, Social Security number, mother's maiden name, or birth date, without your knowledge or permission, to commit fraud or theft.