(by Geck Finn)

With 10 billion electronic transactions cleared every year across the US payments system, the Federal Reserve has warned banks of an increase in unauthorized checking-account debits and fraud. The introduction of the Check 21 Act on October 28 heightens the risk of checking-account fraud as banks will no longer return original checks to consumers with monthly statements, and forgeries or check alterations will become difficult to identify and prove. Although consumers disputing a charge have some recourse in the Electronic Fund Transfer Act, the protection afforded is less than if a credit card is fraudulently used.

Consumers disputing an electronic debit from their checking account immediately after receiving a bank statement are legally entitled to a refund from their bank within 10 business days while an investigation is conducted. In this context consumers are legally required to check their bank statements to find potential errors relating to electronic transactions, but if the bank later decides a charge is valid, it can reclaim the money from the account. For this reason, consumers are advised not to use checks at merchants they do not know, to reduce the risk of their checking-account numbers being illegally used for an ACH debit.

Checking-account numbers should be guarded as closely as social security and other account numbers, according to industry observers, who predict an increase in corporate account fraud after the Check 21 Act takes effect. Ironically, the number of paper checks processed in the US is at its lowest level since 1989, after falling by almost 6 per cent to 3.64 billion in Q1 2004, the Federal Reserve reported recently. Electronic check payments through the ACH rose by 154 per cent during 2003, but will increase post-Check 21, while PIN- and signature-secured debit payments rose by almost 20 per cent last year.