So, when John Hunt of Joplin discovered that he was missing a check for payment of his American Express account that he normally received with his monthly bank statement, he may have over-reacted. He already had the stress of convincing his bank to keep enclosing his checks with his statements in the first place, a process that most local banks have abandoned.
What Hunt discovered was that, like many other companies streamlining their billing practices, Amex had initiated a new policy. According to a spokesperson for the company, Amex notified its account holders last summer--the little scrap of paper that gets tossed out with the envelope--that by the beginning of the new year it was changing the way it collected payments.
Amex had joined the Automated Clearing House system's program of check conversion. Instead of physically sending his check through the banking system as had been the normal practice, Amex was now converting its consumer mailed-in check payment to an Automated Clearing House (ACH) debit system, an electronic system first offered as early as the late 1990's.
What this meant for Amex was faster collection time. What this meant for Hunt was that he no longer would receive back his canceled check. Instead a debit notation for the ACH withdrawal would appear on his financial institution's monthly bank statement. According to the National Automatic Clearing House Association (NACHA), the ruling body for ACH transfers, this debit notation also had to include the ACH transfer number, the check's serial number, and the payee.
Hunt could request a copy of his check from Amex. They are abiding by a rule that requires them to produce a copy of the check within 10 banking days of a written request by a consumer. This service, they say, is free. Additional rules set up by NACHA require them to retain a copy of the front and back of the check for 7 years.
An important regulation set up by NACHA is that consumers must receive prior notice that by sending a check they are authorizing it to be converted into an ACH debit to their account. Debbie Ralston of rural Joplin thinks that Direct TV, the national satellite company, did not abide by that rule. She said that she also was surprised to find the electronic debit transfer on her banking statement. Direct TV could not be reached for comment.
Pat Dolohanty, Phoenix-based financial officer for CableOne, said that his company currently employs DirectPay, a pre-authorized payment system that most utility companies also use. But, sometime in 2003, he expects his company to adopt the check conversion system. Other local companies interested in processing payments more efficiently and benefiting from cash flow predictability no doubt will follow suit.
Electronic check conversion also might operate in the same way as a debit card. Many consumers may have been astonished over receiving their checks back from merchants after providing them as payment. These merchants are using the checks for the information they provide: the check number, the bank routing number and the account number. The information is then used to make a one-time electronic payment from their accounts—an electronic fund transfer. The check itself is not the method of payment; therefore, sufficient funds must be on deposit to cover the amount of the transfer to avoid a fee imposed electronically. And the original check should be voided.
The major players currently in the ACH system are the Electronic Payments Network (EPN) that is a subsidiary of the New York Clearing House (controlled by 11 of the nation's largest banks), VISA, and the Federal Reserve Bank. According to Matt Davies, ACH Product Specialist at the Federal Reserve Bank of Kansas City, EPN is aggressively picking up the electronic transfer business but still lags behind the Federal Reserve Bank, billed as a "quasi-government agency."
A survey by the New York Clearing House in 2002 concluded that there were several major obstacles thwarting bank to bank e-payments. However, according to Deborah Shaw of NACHA, volume of use was up 11% in the fourth quarter of 2002 and should double by 2006. NACHA's latest report shows that the ACH network serves 20,000 financial institutions, 3.5 million businesses and 115 million individuals.