Call it the case of the disappearing check.
It used to be that when Georgia State University law professor Mark E. Budnitz mailed a check to pay his American Express bill, the check would come back with his monthly bank statement. These days when he sends his check, the bill is paid and the transaction is duly noted on his bank statement — but the check itself is gone.
Budnitz and a growing number of Americans are experiencing what is known as ARC, or accounts receivable conversion, which basically involves turning a check into a debit transaction.
Such electronic conversions involve just a fraction of the more than 35 billion checks written each year. But a trade group known as NACHA — The Electronic Payments Association says they are "the fastest growing payment application" in its three-decade history.
NACHA estimates some 1.25 billion consumer checks sent to pay credit cards, mortgages, insurance premiums and telecommunications bills were converted into ARC payments in 2004 and projects that the total could hit 2 billion this year.
Budnitz, who specializes in consumer law, said that even he was confused when he first confronted an electronically converted check.
"I was looking for my personal check," which normally would have been attached to the statement, he said. "It wasn't there. Instead it was listed under what my bank calls 'automated checks.'"
No consistent language
Part of the confusion for consumers is that there's no consistent language to describe the ARC transactions. Butnitz's bank may label them "automated checks," but another institution may call them "authorized transfers" and another simply "ARC."
And often the category label is used to describe not only ARCs but also direct deposits and the direct payment arrangements consumers set up with utilities and telephone companies.
It's even more confusing because these conversions are occurring at a time many financial institutions are moving to implement the Check Clearing for the 21st Century Act — better known as Check 21. Under the new law, banks can make images of checks and transfer these images electronically for clearing; consumers will get images of their checks with their bank statements, not the originals.
Elliott C. McEntee, president and chief executive officer of NACHA, which is based in Herndon, Va., said most consumers seem comfortable with the electronic systems. He said a recent survey conducted for the group found that just 4 percent of check writers have called their financial institutions in the past six months with questions about check conversion payments.
"We think it's a service that creates a win-win situation," McEntee said. "It's good for consumers, and it gets more paper out of the check-clearing system."
How it works
The way the system works is that credit card companies or other businesses receive consumers checks at special post office box numbers, or "lockbox" locations, where scanners read the data on the checks. This information then is used to clear them electronically through the Federal Reserve system.
The transaction shows up on a consumer's bank statement as an electronic debit. The check is then destroyed to reduce the possibility of double billing, McEntee said, but an image of the check is kept by the processor.
Financial institutions are required to list on the consumer's statement the date the check cleared, the check number, the payee and the dollar amount — "more detail than most banks give for paper checks," McEntee said. Banks and savings banks also must allow consumers to opt out of ARC processing, though less than a quarter of a percent of consumers have done so, he said.
More consumer participation
Jean Ann Fox, director of consumer protection for the nonprofit Consumer Federation of America, based in Washington, D.C., advises consumers to be vigilant in dealing with electronic check conversions.
"Checks clear faster under ARC," she said. "That means it's especially important that consumers make sure they have money in their accounts to cover the checks they write."
Fox also said consumers should review their statements carefully when they arrive.
If a transaction appears to be incorrect — say a check written for $140 shows up on the statement a $104 — the consumer "should notify the biller and the bank immediately," Fox said.
ARC transactions are governed by federal laws that apply to electronic banking _ the Electronic Funds Transfer Act and the Fed's Regulation E. Under these rules, the consumer has 60 days from the date the statement was sent to notify the financial institution of a problem. The financial institution then has up to 45 days to investigate.
"Another downside is you don't get a canceled check back in order to have proof that you paid the bill," Fox said. If consumers feel they need a copy of a particular check, they should request it from their biller or financial institution as soon as possible.