When John Moffatt got his American Express bill last month, he noticed an odd little message just under the amount due.
The company had started processing consumer checks electronically, "and banks will no longer return checks," the note said. "Statements are valid as proof of payment."
The Springfield resident was incensed. He has always gotten his canceled checks back, and he regards them as his property and an essential component of his financial records.
Although AmEx promises to provide a copy of his check at no charge if he asks for it, Moffatt is far from confident that such a system will be dependable in the long run.
"I find it a bit frightening that these things are happening," he said last week. "It's almost like they don't care about the consumer."
But American Express, along with others involved in the growing field of electronic fund transfers, say consumers have nothing to worry about and should actually benefit from the new system.
What American Express and a small but increasing number of others are doing is called electronic check conversion. They take checks they receive and scan them into a computer system, creating an electronic payment. Such payments can be zipped to the business's bank and then to the consumer's bank quickly, securely and cheaply, proponents say.
"If you pay by check, when we receive it, it becomes a 'source document' for us [for payment information]. You've given us your approval to initiate the payment electronically via the Automated Clearing House system," a national electronic payment network, said AmEx spokeswoman Judy Tenzer.
"The Federal Reserve has been advocating this kind of electronic processing, and the industry is looking at it as a positive. It is a simplified process and more secure process," she said.
Tenzer said AmEx started using this process late this summer and has not yet included all its cardholders. It will be used only for holders of individual -- as opposed to corporate -- cards, and only in this country, she said.
Of course, some banks have been "truncating" checks for years, giving depositors only a statement, with canceled checks, or copies of them, sent only by request.
But "conversion" is relatively new.
One form has been in operation in the Washington area for more than a year: conversions by retailers at the point of sale. When customers present a check, they sign an authorization and the clerk scans the check through a "reader" to complete the transaction electronically.
When the conversion is done on the spot, however, the customers presumably know what is going on -- and they get the check handed back.
Currently, banking law requires that conversions be done before the check enters the banking system. Once the paper check is deposited with a bank, it must be processed as a paper check, according to the Uniform Commercial Code (UCC). But under a relatively new interpretation of Federal Reserve Regulation E, which governs electronic fund transfers, a payee may treat a check as an authorization to initiate an electronic payment. That means that if the payee converts the check before it reaches a bank, the transaction can proceed electronically and is governed by the Fed as an electronic transfer, rather than by the UCC as a check payment.
Some banking officials concede it may be harder with check conversion for payers to prove exactly when a payee received a payment -- the kind of dispute that can arise with late fees, penalties or interest. A person's bank statement will show only when the debit was posted to the payer's account. But otherwise, proponents of electronic payments say that Reg E provides better consumer protections than the UCC does.
Elliott C. McEntee, president of NACHA, the Electronic Payments Association, said his group also "has detailed consumer protections in our rules" that in many situations are better than laws and rules covering traditional checks.
He said there is a "whole error-resolution process" for situations where the consumer believes a transaction is unauthorized, or the amount is wrong or entered twice.
"One of the big advantages is your monthly [bank] statement will now have descriptive information on the biller you sent the check to -- the check number, the date and amount of the check, and now also the name of payee," McEntee said.
Through the third quarter of this year about 12 million checks had been converted this way, according to NACHA figures. Americans write 30 billion to 50 billion checks a year, depending on whose figures you use.
The potential savings to the banking system are considerable, because the expense of trucking checks around the country would be reduced. Payees would also get their funds much faster.
Banks have been hoping more Americans will turn to online payments, and indeed that is growing. But a great many of us still prefer to pay by check, so payees and banks are deciding that if we won't shift voluntarily, they'll do it for us.
Over the next two months, more than 2 million students who graduated from college this spring will come to the end of the six-month grace period and have to begin repaying their government-guaranteed student loans. Sallie Mae and other lenders are reminding them to check with their lenders to go over payment options. Many offer discounts for direct-debit payments or a certain number of on-time payments. Borrowers with more than one loan may also consolidate -- and if they apply before the end of their grace period, it's possible to lock in historically low interest rates, in some cases only 3.5 percent.
Consumer groups are applauding a recent move by the comptroller of the currency to discourage "payday lenders" from affiliating with national banks to get around local usury and small-loan laws in 18 states and the District.
The case involved Texas-based Ace Cash Express Inc. and Goleta National Bank of Goleta, Calif. Ace had been accused of, in effect, renting Goleta's charter to operate in those states. The comptroller ordered Goleta to stop making these loans and fined both companies.
Payday loans are short-term loans repaid when the borrower gets his paycheck. Fees charged typically work out to extremely high annual rates.
"We applaud the comptroller for taking strong action for the third time this year against a national bank on safety and soundness grounds for partnering with payday lenders," said Jean Ann Fox, consumer-protection director of the Consumer Federation of America.
Fox noted that the Ace-Goleta relationship has triggered legal actions in several states, including Maryland.