Stores turn checks into electronic withdrawals; some people dubious
Monday, June 24, 2002
Checks. There's no taking them away from consumers -- so how about giving them back?
That's what happened to Toni Quinn of Seattle recently when she whipped out a check to pay for some merchandise at the Mariners Team Store in Alderwood Mall.
The clerk ran Quinn's check through a verification terminal, asked her to sign a receipt, and handed her check back. The clerk explained to a puzzled Quinn that her signature on the receipt authorized the withdrawal of funds from her checking account in about 48 hours.
When Quinn later called her credit union to ask whether this was a debit or credit transaction, she was told, "Neither -- it's a third way."
That third way is known as "electronic check conversion."
First introduced in 1998, the payment method has been slowly growing, as merchants seek a way to avoid the hassle and expense of dealing with paper checks, while still allowing customers to use them.
Consumers love checks, preferring them over both debit cards and credit cards. Despite predictions that checks would disappear thanks to electronics, consumers have held fast to their checks, which the banking system regards as inefficient. One of the stated goals of the Federal Reserve is to "facilitate the movement toward electronic payments."
Movement on that path is still slow, but the pace appears to be picking up.
TeleCheck, one of the major payment vendors for electronic check conversion, says that 55,000 merchants nationwide are now using its system and that check volume has doubled within the past year.
"It's a way to blend the inherent benefits of a paper check with the efficiencies of an electronic transaction," says Jeff Fowler, a spokesman for TeleCheck.
Those using the TeleCheck system in this area include the Seattle Mariners; Just Sports, a sporting goods chain; and Liquidation World.
Quinn, distrustful of the new system, asked the Mariners to process her check the old-fashioned way, which the store did.
Later, she called her credit union, the Portland Teachers Credit Union, to ask about the new system -- and says she was told to avoid it. Quinn believed the system took away the stop-payment option she has when writing a check.
However, Mary Jane Campbell, a senior vice president at the credit union, says that either there was a misunderstanding or the person Quinn spoke to was simply giving a personal opinion.
The credit union does not believe electronic check conversion is bad for consumers, Campbell says.
In fact, Fowler of TeleCheck says that electronic check conversion is better for consumers, because it's safer. Your check is no longer passing through the hands of six or seven people for processing. It's seen only by the merchant and then returned to you.
Customers often write checks to get the "float" -- the few days it takes for a check to clear before the money is actually withdrawn from an account. The float is generally seen as an advantage over debit cards, which involve an immediate, direct withdrawal from the checking account.
So how does the electronic check conversion stack up on that score? Fowler maintains that customers still get the float with the new method. But the processing is faster than with paper checks, vendors like TeleCheck tell merchants.
TeleCheck says processing takes about 48 hours -- about the same as for a check. But the Federal Reserve tells consumers that electronic transactions may be faster, and warns consumers to have enough money in their accounts.
The Federal Trade Commission puts it even more strongly: "What does electronic check conversion mean to you? 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 bounced check fee by the merchant, your bank or both. Bounced checks can blemish your credit record."
Contrary to what Quinn believed, consumers do retain the same stop-payment option they have when they write a check.
But with either a check or an electronic check conversion, the request to stop payment must be made before the check has cleared or the electronic charge has been posted at the bank. That means consumers using electronic check conversion probably will need to contact the bank sooner than if they were using paper checks.
An advantage of electronic check conversion, says the Federal Reserve, is that consumers have the right to an investigation by the bank when an error occurs.
Consumers Union spokesman David Butler says electronic check conversion is so new that the organization hasn't developed a policy on it and isn't aware of any consumer complaints.
The trade commission has a brochure on the topic advising consumers to keep a close eye on their checking account and to reconcile their statement carefully every month. Also, the agency emphasizes that consumers should not give out account information on the phone unless they have initiated the contact or know who they're dealing with. Finally, it urges consumers to keep the checks that are handed back to them as proof that they paid. (Merchants stamp the checks "void" before returning them.)
Though consumers may look at electronic check conversion cautiously, Don Darnbrough, manager of the Mariners Team Store in Alderwood Mall, is enthusiastic about the new payment system.
"The advantage to us is, it does seem to speed up the process," he says. Clerks don't have to take down driver's license information, because TeleCheck automatically verifies the check and takes responsibility for it.
"We don't have to worry about listing 30 or 40 checks when we process them at night," Darnbrough says. "Checks sometimes get lost, misplaced in the drawer. Now we're not having to worry about that."
Darnbrough says many customers, like Quinn, are surprised or puzzled by the system, because they haven't run into it yet. Once it's explained, most "seem to be fine with it," he says.
Merchants also are sensitive to the fees they must pay for using a payment system. Mariners spokeswoman Rebecca Hale says the TeleCheck system is at the inexpensive end, costing about the same as PIN debit transactions and much less than Visa or MasterCard credit card transactions.
But Transaction World Magazine said last year that larger national retailers have balked at switching to electronic check conversion because the time it takes to educate consumers about the new system slows down their lines. They also would have to educate their cashiers and accountants. And integrating the new electronic system with their existing system is "no easy task," according to the magazine.
It also said banks and credit unions don't like the system, because it deprives them of significant revenue from check-processing fees.
ELECTRONIC CHECK CONVERSION
Electronic check conversion is a process in which information from a check -- the check number, account number and financial institution identification number -- is used to make a one-time electronic payment from your account. The process is an electronic fund transfer; the check itself is not the method of payment.
Source: Federal Reserve
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