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Check Writing and Processing…in the 21st Century

Electronic Check Conversion and the newly enacted law called Check 21 are significantly changing the processing of checks and it is important for you to understand how these changes impact your checking account.

Electronic Check Conversion:

In recent times, you may have noticed that occasionally you may not have received your original check or check image back with your monthly account statement. This is due to Electronic Check Conversion and is a process in which your check is used as a source of information – for the check number, your account number, and the number that identifies Windsor Federal Savings. The information is then used to make a one-time electronic debit from your account – an electronic fund transfer. The ACH rules in accordance with Regulation E allow a merchant to use prior notice and receipt of the check as authorization for this type of transaction. These transactions will not appear on your statement with your checks but rather with your other electronic transactions. However, the transaction description will include the check number and the biller’s name.

There are two types of electronic check conversion transactions that you may experience, “Point of Purchase (POP)” and “Accounts Receivable Entry (ARC)”.

A “Point of Purchase (POP)” transaction
occurs when you provide your check in person at a merchant and the merchant uses information from your check to make an electronic debit from your account. The merchant will normally run the check through a machine and hand the voided check back to you with your receipt. When this occurs, the merchant must notify you that information from your check will be used to make an electronic payment from your account. Notice may be provided in different ways. For example, a merchant may post a sign at the register or may give you a written notice that you will be asked to sign. If you do not want your check to be converted to an electronic debit, you must refuse to allow the merchant to convert your check and you may have to provide another form of payment (for example: cash, debit card, or credit card).

An “Accounts Receivable Entry (ARC)” transaction occurs when you mail a payment to a biller and the biller once again uses information from your check to make an electronic debit from your account. However, prior to receiving your check, the biller must in some manner provide you a notice telling you of their intentions to convert your check to an electronic item. The biller may have put the notice on your statement or they may have sent a statement stuffer explaining the new way of handling your check. The biller is required to destroy the check to prevent the check from being presented for payment again. Under the ACH rules, the biller is required to keep a copy of your check for 2 years from the day the electronic item posts to your account.

You have different consumer rights with an electronic check conversion transaction than when you use your check as payment and these rights are:

  • You have the right to receive notice when you provide your check telling you that information from the check will be used to make an electronic payment from your account.

  • You have the right to receive notice when you provide your check telling you of any fee that the merchant will collect from your account electronically if you do not have enough money in your account to cover the transaction. This fee is similar to a “returned check” fee.

  • You have the right to receive a receipt when you make a purchase at a store. The receipt will contain information about the transaction including the date, amount and name of the merchant.

  • You have the right to have this same information included as part of the regular account statement from Windsor Federal Savings.

  • You have the right to ask Windsor Federal Savings to investigate any electronic fund transfers from your account that you believe are unauthorized or incorrect.

The ACH rules have built in safeguards that enable us to correct errors or reverse unauthorized transactions. You have 60 days from the date that your statement was sent to you to tell us about the problem. Were you charged the wrong amount? Were you charged twice for the same transaction? Is there an unauthorized electronic transaction charged to your account? If you have a problem with an electronic check conversion transaction, contact our Customer Service Center immediately.

In the event that you need to prove that you made payment to the biller, the biller’s name will appear on your bank statement. This serves as proof of payment. Please remember to always review your regular account statement and keep them as proof of payment.

Check 21 - The Check Clearing for the 21st Century Act

The Check Clearing for the 21st Century Act, popularly known as Check 21, was enacted in October of 2003, with an effective date of October 28, 2004. The Act allows banks to dispense with original paper checks and instead transmit electronic images of the check through the check clearing process. The main goal of Check 21 is to avoid the necessity of physically transporting original paper checks all over the country and instead to facilitate the electronic transfer of an image and other information about a check.

If a consumer or bank anywhere along the chain insists on receiving the original paper check, the Act instead allows the use of a substitute check (such as a laser printout of an electronic image). In accordance with the Check 21 Act, all banks must be prepared to accept a substitute check in place of the original after the effective date of October 28, 2004. Because the Check 21 Act provides that a properly prepared substitute check is the “legal equivalent of the original check for all purposes,” a bank cannot refuse to pay a check based solely on the fact that it was presented with a substitute check instead of the original check. In the long run, this new law is likely going to have a profound impact on the evolution of the payments or check-processing system, escalating the trend toward electronic processing.

A substitute check is, well, just that – a substitute check that includes all of the information that appeared on the original paper check – images of both the front and the back of the check, including the signature – and any endorsements. This information includes the payment and endorsement information from the original check. A substitute check need not contain watermarks, decorative features, or security features that do not survive the imaging process.

What impact will Electronic Check Conversion and Check 21 have on my checking account?

In the case of Electronic Check Conversion, you will receive fewer check images in the future and instead these transactions will be detailed in the “Withdrawals and Debits” section instead of the “Checks” section of your monthly statement. In the case of Check 21, you will at times receive images of a “substitute check” which will resemble your original check but with additional information appearing to the left of the check image. The image of a “substitute check” will have the same placement among your check images as an original check image prior to Check 21.

Important!!! Both Electronic Check Conversion and Check 21 result in faster clearing time for check based transactions. Check float will gradually diminish as more check based transactions are processed electronically. Therefore, you will want to be sure to have adequate funds available in your account when you write a check.

If you have any questions about Electronic Check Conversion or Check 21, please do not hesitate to contact our Customer Service Center at 860-688-8511.





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