Thursday, April 18, 2024

February 2006 Legal Briefs

Electronic Check Conversion under Regulation E

  1. Electronic Check Conversion
  2. Reg E Initial Disclosures
  3. Some Exceptions
  4. Check Conversion by Merchants
  5. Notice at POS Locations
  6. Notice for Billing Statements
  7. Coupon Books
  8. Authorization at POS
  9. Authorization on Billing Statements
  10. Comparison to ACH Rules
  11. Third Party Payment
  12. Advantages for Payees
  13. Disadvantages for Consumers?

Electronic Check Conversion under Regulation E

Effective January 1, 2007, the Federal Reserve has amended Regulation E in a number of ways.  Checks converted to EFT’s by merchants at point-of-sale, or by companies receiving payments in the mail, will be subject to certain disclosure requirements and Reg E‘s standard error-resolution procedures.  

Modified Reg E “initial disclosures” will be required for new bank customers beginning next January 1, but a bank can switch to the new disclosures sooner, whenever it reprints its forms.  On or before January 1, existing depositors also must receive revised Reg E disclosures.

Merchants and other payees can comply early with new electronic-check-conversion disclosure requirements, to gain some benefits under the revised regulation.  Bank customers will see more line-item EFT’s on their statements, replacing checks that the customer has written.  Customers may not understand why they can’t get a check back in their statement, or why they have overdraft charges when an EFT pays faster than the check does. 

1.  Electronic Check Conversion

Regulation E is revised in several ways to deal more specifically with electronic check conversion (ECK) transactions.  Section 205.3, listing what transactions Regulation E covers, adds a new subsection (b)(2)(i), as follows: “(2) Electronic fund transfer using information from a check.  (i) This part applies where a check, draft or similar paper instrument is used as a source of information to initiate a one-time electronic fund transfer from a consumer’s account.  The consumer must authorize its transfer.”

Generally in the past, if a transaction starts out with a check, it has not been subject to Regulation E, no matter how that paper item is transformed later—for example, converting a check to an image before it is presented, or re-presenting a returned check electronically.  On the other hand, a transaction that starts out as an electronic funds transfer has always has been covered by Reg E.

The “grey area” (in deciding whether a transaction is covered by Reg E) has been when the customer presents a check to the merchant, but the merchant just scans the MICR line (for routing number, account number, and check number) to originate an electronic funds transfer (EFT) from the customer’s bank account.  The merchant hands back the consumer’s check, along with a copy of the EFT transaction slip, stating, “Keep this for your records.”

In this situation, the revised Regulation E provisions do not treat the customer’s check as a payment instrument, but only as a “source of information” for originating an EFT.  (The Fed says this transaction is an EFT from the beginning, not a payment by check.)

Calling an electronic check conversion an EFT may seem odd to the customer, whose intention was to pay by check.  But the merchant never intended to accept payment in check form, and at all times wanted to be paid by  EFT. (In situations where the consumer mails a check as payment of a bill, the consumer may believe even more strongly that has paid by check; but this may not be true either.  With proper disclosure on the billing statement (discussed later), the payee does an accounts receivable conversion (ARC), originating an EFT from the information on the mailed check.  This transaction is subject to Regulation E, and is not considered a payment by check.)

(Although it’s a bit odd to say that ECK and ARC transactions resulting from electronic conversion of checks are EFT’s instead of checks, there really isn’t any check or image of a check that gets deposited with or presented to any financial institution.  Under these facts, it would be hard to apply the UCC rules governing checks.  Bringing the transactions under Regulation E is a more natural, and possibly the only workable, approach.)

2. Reg E Initial Disclosures

For new accounts opened after January 1, 2007, a bank’s Regulation E initial disclosures must be modified to list an additional type of EFT–a one-time electronic fund transfer from a consumer account using information from the consumer’s check.  Sample language appropriate for this new disclosure is set out in model clause (d)(2) in Form A-2 of Appendix A to Reg E.  Two other minor changes are made to clauses (a) and (b) of Form A-2.

A bank’s existing deposit customers also must receive a disclosure about the new type of EFT, after January 1, 2007, if the bank has not disclosed this new type of transaction to its customers before that date.   

The effective date of the Reg E changes was delayed until next January 1 to give banks adequate time to comply.  However, a bank can comply with the regulation early.  If a bank needs to re-print its supply of Regulation E initial disclosures at any time during 2006, it should include the new language.  Not later than January 1, 2007, a bank will have to re-print its disclosures if it has not done so before that date.

3. Some Exceptions

New Paragraph 3(b)(2)(iv) of the Fed’s Commentary to Reg E’s Section 205.3 clarifies that the transmission of an electronic check image for collection (as allowed by Check 21) is not an electronic check conversion (ECK), nor an EFT, but merely a method of presentment of the check itself.  (The item that passes through the payment system is still essentially a check.)

New Paragraph 3(c)(1) of the Fed Commentary advises that electronic re-presentment of a returned check (RCK) is also not covered by Regulation E (and is not considered an ECK transaction), because the original presentment was in  check form, not an EFT (and it already went through the payment system once as a check). However, the electronic collection of a returned-item charge imposed by the payee is an EFT subject to Reg E.  (The returned-item charge was never an item in paper form.)

The new ECK definition applies only when information from a check is used as a source of information for a “one-time” EFT transfer from a consumer account.  Reg E has a different rule (in Section 205.10) for “pre-authorized transfers,” which are a series of debits to the customer’s account, occurring at least once every 60 days.  (Repeated transactions might involve insurance premiums, utility bills, mortgage payments, etc.  The consumer typically provides a deposit slip or voided check to the service provider who is establishing the pre-authorized transfers.  Although a check may be used as a “source of information” to originate pre-authorized transfers, these transactions are not covered by the new ECK provisions because the check information is not used to initiate a “one-time” EFT.

4.  Check Conversion by Merchants

Until now, Regulation E’s provisions have applied only to financial institutions. Electronic check conversions occurring at the point of sale, or when  mailed payments are received (conversions by merchants and other payees) have been outside of Reg E’s scope—although governed by NACHA rules requiring authorization for originating an EFT.

An increasing number of payees (especially those receiving payments by mail) have been shifting to electronic check conversion, instead of depositing the actual checks. The Fed wants to make sure that consumers understand the nature and potential consequences of ECK and ARC transactions.  Although some merchants have been providing adequate notice to consumers, others have not.

The revisions bring merchants and other payees under the coverage of Reg E for the limited purpose of standardizing the notice that consumers must receive, and determining what constitutes authorization to originate EFT’s. (Merchants and other payees are the only parties who are in a good position to give notice to the consumer and obtain authorization before electronic check conversion occurs.) 

5. Notice at POS Locations

Section 205.3(b)(2)(ii) of Reg E explains what notice must be given at a point-of-sale (POS) location to authorize the payee to electronically convert the consumer’s check.

The consumer must receive notice in two ways (both involving basically the same disclosures) in a POS electronic check conversion.  First, the POS notice “must be posted in a prominent and conspicuous location” (at the register). Second, in a POS transaction “a copy of the notice must be provided to the consumer at the time of the transaction.” (The notice might be printed on the consumer’s copy of an authorization slip signed by the consumer in connection with the check conversion.  The notice could also be printed on a cash register receipt, or on a separate piece of paper handed to the consumer at the time of the POS transaction.)

Model clause (a) of new Form A-6 in Appendix A of Reg E has sample language for the required notice to consumers. Two separate paragraphs in clause (a) must each be given, as applicable, to alert the consumer (1) that his check may be electronically converted, and (2) that a returned-item fee of $___ may be charged to his bank account by EFT.

The model notice for electronic check conversion (the first paragraph mentioned above) states, “When you provide a check as payment, you authorize us either to use information from your check to make a one-time electronic fund transfer from your account or to process the payment as a check transaction.”

The preceding sentence gives the merchant or service provider sufficient flexibility either to process the consumer’s check as a check, or to use electronic check conversion.  For example, some merchants may decide to process local checks in paper form, while converting other checks to EFT for faster settlement. Although the model language allows a combination of approaches, it can be used even if, for example, a merchant knows that he will process all check-based payments by EFT and none as actual checks.
 
For checks received in a POS situation, the model language quoted above is appropriate if electronic check conversion will occur at the register, but also works if the merchant’s office personnel might convert the check later.   
 
The second required paragraph in clause (a) of Form A-6 relates to returned-item charges posted directly to the customer’s account by EFT.  This second paragraph must be included if the merchant (or other payee) imposes returned-item fees that get charged electronically to a consumer’s account: “You authorize us to collect a fee of $___ through an electronic fund transfer from your account if your payment is returned unpaid.”  

As with the notice that the consumer’s check may be electronically converted, this notice that a returned-check charge may be originated by EFT should be given both by posting it prominently and conspicuously on a sign and by giving the customer a copy in a form that he can keep.  For example, it could be printed automatically on each cash-register receipt.

(Many merchants are already providing a clear and conspicuous posted notice that a returned-item charge of a certain dollar amount will be originated by EFT.  However, beginning in 2007, a merchant also must give the consumer a copy of the same notice with every transaction, in a form that he can keep.)

NOTE: Currently, many merchants process checks through the normal collection process, not by electronic conversion.  When a check bounces, the merchant then often uses a collection service that re-presents a check by EFT instead of processing the paper check a second time. (Electronic re-presentments of returned checks are RCK entries in ACH terminology.)   

If a returned check was not processed the first time as an EFT, en electronic re-presentment of that check will not be subject to Regulation E.  However, the returned-item charge is a different matter.  If a returned-item fee will be originated by EFT, this additional charge (not part of the original check presentment) will be subject to the new Regulation E notice requirements.  

Accordingly, effective January 1, 2007, any merchant who will impose an electronic returned-item charge (even if he does not engage in electronic check conversion) must prominently and conspicuously post the second paragraph of model clause (a), and also must provide that notice in a form that the customer can keep, such as by printing the notice on each cash register receipt. This is a change from standard industry practice, which currently includes a posted notice at the register, but does not give the electronic returned-check-charge notice to the consumer with each check-based POS transaction in a form that the consumer can keep.    

A third provision, new model clause (c) in Form A-6 in Appendix A, must be given by all merchants who will do electronic check conversion, but also by merchants who will only originate EFT’s for returned-check charges.  This model clause (c) must be posted in a “prominent and conspicuous” location (at the cash register), but a copy of this one does not have to be given to the consumer.  

Model clause (c) states, “When we use information from your check to make an electronic fund transfer, funds may be withdrawn from your account as soon as the same day [you make] [we receive] your payment[, and you will not receive your check back from your financial institution.}”  

This model clause addresses two possible misunderstandings: (1) a consumer may not recognize that an electronically converted check (or EFT for returned-item charges) could pay as early as the same day; and (2) a consumer may be expecting that his check (or an image) will be returned to him with his bank statement—particularly if he mails a check as his payment, or his check for some reason is not handed back to him at the time of a POS transaction).

The first half of model clause (c) must be given even by a merchant who originates EFT’s for returned-check charges but never converts checks electronically. (If the only EFT’s will be for returned-check charges, the second half of model clause (c) will not apply, because the customer will never give a check for the returned-item charge.)

In a POS transaction, the notice should indicate that the EFT could pay on the consumer’s account as early as “the same day you make your payment,” not “the same day we receive your payment.”  (The “same day we receive your payment” language applies to payees that receive payments by mail, as discussed later.)

The second half of model clause (c)–“and you will not receive the check back from your financial institution”–can be deleted in POS transactions where the merchant hands the consumer’s check back to him.  (The Fed, however, does not automatically assume that a check will be handed back to the consumer. For example, the merchant’s bookkeeper might convert a check to an EFT later.)  

The requirement to include model clause (c) will apply only from 2007 through 2009.  After 2009, the Fed believes this clause will be unnecessary, because consumers will be more familiar with the nature of these transactions.

6. Notice for Billing Statements

In an accounts receivable conversion (ARC) transaction, a consumer mails a payment to a payee, such as a utility company or mortgage company.  The company receiving the check electronically converts it to an EFT.  What appears on the consumer’s bank statement is a line-item entry for the EFT.  No check or image is included in the bank statement.

ARC transactions are currently being processed based on Section 3.6.1 of the NACHA rules, which requires a payee to “clearly and conspicuously” state that if the consumer provides a check to the payee, receipt of that check will authorize the payee to use the check to originate an EFT on the consumer’s account. This disclosure, usually appearing on the payee’s regular billing statement, has sometimes been buried in fine print, although NACHA rules require it to be stated prominently.

The new Regulation E provision goes beyond the NACHA rule, providing model disclosure language instead of just requiring that a disclosure be conspicuous.  The Fed suggests that payees consider using headings preceding the model notice, to call attention to the information presented, and a print size that is large enough not be ignored.

Notice in a billing statement or invoice that authorizes check conversion should include all of the three model clauses above that apply to the particular situation: (1) the electronic check conversion notice, (2) the notice that an EFT will be originated in a specific amount for any returned-item charge (if true), and (3) the notice that the EFT may pay quickly and that the consumer’s check will not be returned by his bank.

In contrast to a POS transaction (where the consumer will receive two forms of notice), the consumer receiving a notice on a billing statement or invoice will get just one notice, so it especially needs to be clear.

As with POS transactions, it’s not necessary to give notice that an EFT may be originated for a returned-item charge if the company does not impose such a charge, or simply adds any such charge to the next invoice.  If a company does not electronically convert checks, but does originate EFT’s for returned-item charges, the check-conversion disclosure would not be required on a billing statement, but the model returned-item-charge language and the first half of model clause (c) would still be required.

As with POS disclosures, the requirement to include model clause (c) on a billing statement or invoice will expire at the end of 2009. 

7.  Coupon Books

The new Reg E disclosures for billing statements and invoices must be provided in connection with each payment (in other words, for each statement period).  

If a payee furnishes payment coupon books, there won’t be monthly mailings to the consumer in which to include regular check-conversion disclosures.  (Coupon books are common for closed-end mortgage loans and car loans. A coupon book is mailed in advance, often including twelve months’ payment coupons or more.)

The Fed has decided that it will not be necessary to print the required disclosures on each coupon in a coupon book. Instead, the check-conversion disclosures can be given in a noticeable location, such as on the first page, or inside the front cover.  In this way, a consumer can retain the disclosures, even after coupons are torn out.

Many lenders will have coupon books already outstanding at the effective date of the Reg E changes (January 1, 2007).  These entities can comply with the new requirements by mailing a one-time notice to coupon-book customers, providing the required check-conversion disclosures.

8.  Authorization at POS

The Fed debated whether a merchant should be required to obtain the consumer’s signed authorization before an electronic check conversion would be “authorized” for purposes of Regulation E.  The Fed decided not to require a signature.

Instead, new Section 205.3(b)(2)(ii) of Reg E provides, “A consumer authorizes a one-time electronic fund transfer (in providing a check to a merchant or other payee for the MICR encoding, that is, the routing number of the financial institution, the consumer’s account number and the serial number) when the consumer receives notice and goes forward with the transaction.”   

Simply “going forward” with the transaction, after notice, amounts to “authorization.”  Under Regulation E, consumers can dispute electronic check conversions, as well as EFT’s originated to collect for returned-item charges—just like other EFT’s can be disputed; but these items will be considered “authorized” (and not reversible for non-authorization) if appropriate notice has been given.  To prevent consumers from successfully disputing these transactions under Reg E’s procedures, merchants must comply with Reg E’s new disclosure requirements.

(The same is true of notices that payees must give on billing statements and invoices:  If the provider, such as a utility company or a mortgage company, gives proper notice in its billing statements, then its electronic check conversions and EFT’s for returned-item charges will be “authorized” for Reg E purposes, beyond dispute.)

In expanding the scope of Regulation E to include electronic check conversion transactions and EFT’s for returned-item charges, the Fed’s wants to make sure that consumers understand these types of transactions and won’t be surprised by electronic items hitting their accounts.  

For POS transactions, the Fed requires the merchant to post notice at the cash register and to give the consumer a copy that he can keep.  This assumes, for every POS transaction, that the consumer could say, “Stop. I don’t want to buy the merchandise this way.” If the customer declines to go forward with the transaction because of the notice, the merchant would have to cancel the EFT as being unauthorized.   

But if the customer says to “stop” the electronic check conversion, that won’t cause the merchant to accept the consumer’s paper check.  The consumer won’t be able to complete the purchase of goods or services, unless he can pay by an alternative method, such as cash or a credit card.  

(A consumer may dislike the situation and be resentful, but will still usually go ahead with the immediate POS transaction to avoid embarrassment.  Looking forward, however, he might even switch his future business to a different merchant, to avoid electronic check conversion.  Over time, however, as electronic check conversion becomes more widespread, many merchants will start using electronic conversion, and even the most reluctant consumers eventually will have to accept it.)

9. Authorization on Billing Statements 

When consumers mail checks to pay monthly billing statements, invoices, etc., the Fed’s approach is much the same:  If the provider gives the proper notice on the statement (as outlined above), and the consumer “goes forward” with the transaction (mails a check to the provider), these two steps provide automatic “authorization” for electronic check conversion for purposes of Regulation E.

In the billing statement situation, a customer has little choice but to mail a payment check along with the tear-off portion of the monthly statement.  He has to make a payment, so has to mail a check.   

With “mailed payments,” the customer will not be handed his check back, will not see a prominently posted notice such as exists at a check-out, and will not be handed a copy of the required notice at the time of payment (all of which occur in a POS transaction).  Instead, the “mailed payment” customer will just get the notice that is printed on his billing statement.

A lot of consumers may not bother to read the special notice printed on their monthly billing statement, and will be surprised when an EFT is originated by the payee, resulting in faster payment from the customer’s account.  This customer also may be surprised that he does not receive his actual check (or an imaged copy) in his bank statement.  Until customers get used to electronic conversion, banks will need to deal with some unhappy consumers who don’t understand all of this.

10. Comparison to ACH Rules

NACHA rules already apply to electronic check conversion and origination of EFT’s to pay returned-item charges. These NACHA rules will still apply, and will continue to be somewhat different unless amended by NACHA to conform more closely to the new Reg E provisions.

Payees originating EFT’s will need to comply with both Regulation E and the NACHA rules. (The Fed’s new provisions are not designed to pre-empt or remove any NACHA requirement.  Rather, Reg E adds another layer of provisions.)

a. Time Period to Dispute Transactions.  As one example of different provisions, under the NACHA rules there is a 60-day period from the settlement date of the original entry to assert that an ACH is unauthorized.  However, Section 205.11(b)(1)(i) of Regulation E allows the consumer to give notice of an error not later than 60 days after the sending of the statement that contains the alleged error.  By extending Reg E to cover electronic check conversion and the origination of returned-item charges by EFT, the Fed has extended the time period during which a consumer can challenge an EFT’s authorization. A commenter suggested that allowing such protests outside of the initial 60-day period following the transaction would violate NACHA rules. The Fed’s response is that the time period is statutory, required by the EFT Act.

b. Requiring a Signature. For POS transactions, revised Regulation E takes the approach that proper “notice” at the POS location, together with the consumer’s actions in “going forward” with the transaction, equals “authorization”—and with this much, the consumer can’t allege under Reg E that an EFT was unauthorized.  

By contrast, under NACHA rules, if a consumer signs an affidavit that an ACH transaction was “unauthorized,” at least the merchant in a POS transaction may be required to prove that the item was actually authorized by the consumer.  In POS transactions it’s desirable to continue the standard industry practice of obtaining a signed authorization to convert the consumer’s check electronically—although Regulation E does not require this.  If a merchant returns the customer’s check after scanning the MICR information, the merchant really has nothing to prove whether it was the consumer or a thief who handed that check to the cashier, unless a signed authorization is obtained and/or identification is checked.  

Banks processing EFT’s for merchants could reasonably impose certain operating procedures on merchants who do electronic check conversion in POS transactions, including a requirement to obtain the consumer’s signature.  A signature is still the best way to satisfy the NACHA “warranty of authorization.”

When a consumer mails checks to make payments on a utility bill, rental agreement, loan, or other contractual obligation, the situation is quite different from a POS transaction. Current NACHA rules, at Section 3.6.1, require a clear and conspicuous notice in the billing statement, advising that if the consumer sends a check, the payee will electronically convert the check without further authorization.  Unlike the POS situation, the payee in the “mailed payment” scenario doesn’t get a signed authorization but has the opportunity to retain the actual signed check (or an image of it) as documentation.  

Furthermore, a thief who steals the consumer’s checks is never going to use one of them to make a payment on the consumer’s utility bill, mortgage loan, etc.  When a payment is received in the mail on these kinds of bills, it’s almost always going to be the “real person” who mailed it.

If a consumer asserted that an EFT to pay one of the consumer’s bills was “unauthorized,” the effect of reversing the EFT would be to cancel the payment.  If the provider is a utility company (and the effect of reversing the payment would be to cause utilities to be shut off), or it’s a mortgage company (and challenging an EFT would cause the home loan to go into default), these payees are very safe in using electronic check conversion of mailed payments (instead of collecting the actual checks), because the consumer isn’t going to challenge “authorization.” 

11. Third Party Payment

The Fed’s Commentary to Regulation E clarifies that if a billing statement is sent to the consumer who is listed on the account, disclosing properly and clearly that checks mailed as payment will be subject to electronic check conversion, this disclosure in the billing statement will be adequate notice to anyone who actually makes a payment by check on that account during the billing cycle.  

If a relative (or any third party) makes a payment on the consumer’s account by check, that third party is deemed to have authorized his/her check to be electronically converted, and also has constructively authorized an electronic returned-item charge to be originated on his/her account (if the billing statement notice so provides).  Further, the third party is constructively notified that his/her electronically converted check may pay on his/her account as early as the same day that that it is received by the payee, and that he/she will not have the original check (or an image) returned in the statement from his/her bank. 

12.  Advantages for Payees

There are a number of potential benefits for merchants and billing-statement entities in switching to electronic check conversion.  The possibility of faster or cheaper collection for some or all checks may be attractive, depending on the quantity of items to be processed and the geographical distribution of payment items.

Local checks may actually clear as fast as EFT’s; but EFT’s will be faster for collecting checks from other Federal Reserve districts.  Any company that has a single payment office serving a multi-state region (an insurance company, mortgage company, cell phone company, etc.) could benefit from electronic check conversion.  Many banks have loan customers that have moved to other states, and the Fed suggests that some banks may want to convert their customers’ loan payments to EFT’s (at least for non-local customers) after giving proper notice in the monthly statement.  

The clearing of imaged checks (pursuant to Check 21) may be faster than EFT’s, but has a higher per-item cost. For different payees, the quantity of items being processed, the collection cost per item by various methods, and the geographical distribution of checks being collected may yield a different “best solution.”  EFT’s are not right for every payee.  They are another available option that will work well for some payees.  

Some companies will decide to process local checks normally, while converting out-of-area checks to EFT’s.  (Collection by EFT will cost less than check imaging.  Particularly for companies processing a high volume of fairly small consumer checks, EFT’s could make more sense than imaging.)    

Electronic check conversion will certainly reduce manual handling of items. With EFT’s a payee can eliminate the endorsement of items and the preparation of tapes or lists of deposited checks.  In terms of bank processing, EFT’s eliminate encoding of checks, and the physical transportation of checks through the collection system, or eliminate the conversion of checks to images for electronic collection and possible later re-conversion to substitute checks.  EFT’s appear on consumers’ bank statements as line items, saving labor costs for banks that then do not have to return checks (or images) along with statements.  This also reduces paper and postage costs. Banks can make a greater profit through reduced costs, and can pass on some of the savings through reduced account charges.

Most payees receiving payment checks in the mail have an ongoing arrangement or contract with the consumer (utility company, insurance company, mortgage company, cell phone company, etc.).  Although some customers will be irritated by electronic check conversion, there’s little risk that such payees will lose existing business because of it. These companies also don’t deal face-to-face with the consumer on a regular basis, like merchants do.  

POS transactions, by contrast, are a somewhat more sensitive situation.  If the consumer’s experience at a particular store is not a good one (if he doesn’t like the fact that the grocery store converts his checks to EFT), he can always take his business to a different store.  Over time, electronic check conversion in POS transactions will become more common, but merchants may need to consider whether this “modern technology” will be accepted or resented at the present time by the merchant’s main customer base.

13. Disadvantages for Consumers?

Electronic check conversion is still not very common, and some consumers’ reactions range from “surprise” to “insult” to “anger.”  As more EFT’s are processed on customers’ accounts, banks will have more customers who see these items appearing on their accounts and don’t like it.

In some cases, checks that are electronically converted will pay faster than the customer expects.  Customers regularly ignore a bank’s funds availability policy, but “collected funds” will become more important when items start paying more quickly.  Faster presentment by electronic collection may trigger the customer’s “overdraft protection,” resulting in more overdraft charges on the account.  The customer may believe that the merchant or billing-statement entity has treated him badly, but the bank that imposes unwanted returned-item charges will be closer at hand to argue with.

A consumer going into a particular store is often “surprised” the first time he hands the cashier a check that the cashier scans to originate an EFT. Some people (such as those my age) have always written checks, and may be somewhat offended by the changed situation—for example, the same person’s check suddenly isn’t good enough to be accepted by the merchant who has taken that person’s checks “for all these years.” (“I don’t need this” and “So get over it” are the two sides of the issue, and probably neither side will be really hearing the other.)

Another issue with electronic check conversion is the customer’s reliance on checks as a basis for recordkeeping and for tax records.  Compared to returned checks, the customer has a discomfort with line-item EFT entries on the check statement that only show check number, payee, date and amount.  (When the customer doesn’t get his actual check back, nor an image, and can’t reference the “memo line” of the check as a handy basis for reminding himself of the check’s purpose and possible deductibility, this may be a considerable inconvenience.)

 A lot of consumers are convinced that they need their actual checks as a basis for tax deductions (to prove contributions, medical expenses, business-or-investment-related expenses, etc.).  Actually, the IRS requires adequate documentation of expenses, but does not literally require checks.  Many consumers retain check statements as the “centerpiece” of their record-storing system, and will have a harder time keeping track of a miscellaneous assortment of cash-register receipts and the non-mailed-in portion of monthly billing statements.  However, with EFT’s appearing on their monthly statements, the line item proves payment, and a retained receipt will match the amount of the payment and the name of the payee, documenting the nature of the expense.