Electronic Check Conversion Rules and Regulations

Electronic check conversion (ECC) is something which is not alien to the American banking industry as it has been in existence for many years. However, laws governing ECC were re-enacted in 2006 in ‘Regulation E’ , the rules derived from the ‘Electronic Fund Transfer Act’. It emphasizes several areas related to electronic check conversion while clarifying several disparities which was in existence from the time of ECC implementation.

What is Electronic Check Conversion?

ECC enables an entity to make use of a written paper check and obtain several necessary details from the check in order to create an electronic fund transfer from the checking account. Thus, it does not need to wait until the paper form of the check goes thorough a check clearing house and spend several days before the money becomes available from the checking account. Furthermore, the business entity may return the original check back to its issuer following marking it as void although this is not mandatory in all instances.

What are the rules implemented through ‘regulation E’ in relation to ECC?

According to the Federal Reserve Board, the final amendments to the ‘regulation E’ states the necessity for the merchants to provide notice regarding the electronic fund transfer which will take place following electronic check conversion. According to the act, the merchants need to obtain authorization from the consumers after informing them in writing and not through a verbal notification.  Furthermore, the merchant may use a recorded conversation or even a telephone record in a similar way to a written authorization from a consumer, to carry out the ECC.

At the same time, it requires the merchants to inform its consumers that, when a check is converted the funds may be debited from the consumers account even on the same day and the possibility of the check not being returned by their financial institution.

In case of recurring payments as in the case of debit card transactions, loan installments or coupon books, it is sufficient to place a single notice on the designated documents informing the consumer and giving authorization for the transaction by the same, without having to do the same thing over and over again.

At the same time the regulations also spell out the necessity for a financial institution to look into additional records. Access to additional records within their disposal helps investigate errors that might not be possible to resolve from just sticking to the information they acquire from the electronic fund transfer.

For more information of other regulatory requirements through ‘regulation E’ one can refer the ‘Electronic Check Conversion under Regulation E’ article in the Oklahoma Bar Journal published by the Oklahoma Bar Association.