I've been explaining quite a bit of late about a new federal law that allows banks to convert your checks to digital images.
Well, banks aren't the only businesses using electronic means to process paper checks.
Increasingly, consumers are finding that their checks are being electronically converted by retailers, credit card companies and other businesses that get paid by check. This process is known as "electronic check conversion."
An e-check, as it is also called, is a one-time electronic debit made from your checking account. So, your checking account statement would reflect an electronic funds transfer.
Under electronic check conversion, your check is used simply to obtain information -- such as the bank routing number and check number -- to process your purchase or payment. That information is used to make an electronic withdrawal from your account using the Automated Clearing House (ACH) network.
Many companies are adopting electronic check conversion because it speeds up payment and reduces processing costs.
There were more than eight times as many check-conversion transactions in 2003 than just the year before, according to NACHA-The Electronic Payments Association, which develops the operating rules and business practices for the ACH and for electronic payments.
NACHA estimates that about 225 million (2 to 3 percent) of checks written in retail stores are converted to e-checks. And approximately 10 percent of all consumer bill payments made by check are now converted into electronic payments, the group says.
NACHA also projects that the number of e-check payments is likely to reach or exceed 1 billion by the end of this year.
Your check can be converted whether you're standing in the store making a purchase or mailing it to pay a bill. For example, you may buy something and write a check. But instead of the clerk placing your check in her cash register drawer, she scans it and returns the check to you. If this has happened to you, your check was electronically converted. In some cases, you might not have needed to fill out the check.
Let me warn you right here: When retailers or businesses use check conversion, your payment may be processed a lot more quickly than if they processed your check the traditional way. So be sure you have enough money in your account at the time you make the purchase or pay the bill.
Now, don't go worrying yourself that businesses will have carte blanche to raid your checking account. The company will still have to go through your bank or credit union. Also, for your protection, if you mail a check and the company converts it to an e-check, the original check has to be destroyed within 14 days. "This prevents double billing," said NACHA spokesman Michael Herd. But NACHA rules require the company to keep a copy of the check for two years.
Herd also points out that consumers have better protections for electronic funds transfers, which is what e-checks are, than for checks processed the traditional way. For example, with electronic check conversion you have the right to an investigation by your financial institution when an error occurs.
If a business is using electronic check conversion, it has to tell you upfront, as required by the federal Electronic Fund Transfer Act. You may see a notice at the cash register in a store or you may get a notice in your monthly credit card statement.
And, by the way, if a company is converting mailed checks to e-checks, it has to allow consumers to opt out. Just call and ask. Herd said only 1 percent of people opt out.
Here are some things to pay attention to when it comes to electronic check conversion, according to the Federal Trade Commission and Federal Reserve Board:
* Review your checking account statement to be sure a check was processed electronically only once and for the correct amount.
* If you find unauthorized or incorrect electronic transfers on your account statement, notify your financial institution immediately. Getting your money back or correcting the error will depend on how quickly you report the problem. You have 60 days (from the date your statement was sent) to tell the financial institution about the error.
* For checks processed electronically in a store, keep a copy of the check in case you need proof of payment. That check will have been voided in some way. Also, hold on to your receipt, which should include the date of the transaction, amount, location and name of merchant.
* If you mail a check and a company electronically converts it, you won't get your check back. So keep your checking account statements because they will contain the information about electronically processed purchases and payments. However, if you need a copy of your check, contact the company your check went to; it has to give you one.
If you want more information on this issue, go to www.electronic-check.org, where you will find more information about e-checks used by stores, or through the mail, over the Internet and on the telephone. I also suggest you check out the fact sheets prepared by the Federal Trade Commission and the Federal Reserve Board at www.ftc.gov/bcp/conline/pubs/credit/echeck.htm and www.federalreserve.gov/pubs/checkconv/default.htm.
I know all of this change can be a pain, but you can make the conversion to the electronic age a lot easier if you know your rights and do some research.
Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and online at www.npr.org. Readers can write to her at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071 or send e-mail to firstname.lastname@example.org. Comments and questions are welcome, but please note that they may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.