Still writing checks? Watch out.

When Mary Ellen Corbett recently scanned her bank statement, she noticed a number of deductions from her checking account that she never authorized. It wasn't just one merchant - and it didn't happen just once.

"At first, I was just curious as to why this was happening," says Ms. Corbett, a journalist from Silver City, N.M. "But then I became angry. I see this as an invasion of my privacy and I question the legality of any creditor accessing my account electronically without my authorization."

Corbett's experience is not unusual. Indeed, as banks move away from paper-based transactions, their customers increasingly are bumping into the same problem. The checks they write become, instead, an electronic debit. And the practice is perfectly legal, unless accountholders object.

Worse, it and other industry measures that take effect this fall could boost checking-account fraud. Even the check-processing industry now suggests you guard account numbers as closely as any sensitive personal information. And if you don't know the merchant, don't use a check, industry officials warn, because it doesn't offer the same consumer protections of a credit card.

"These automatic deductions are obviously much more efficient for the bank and the creditor," says Mark Budnitz, a professor at Georgia State University College of Law and a board member of the National Consumer Law Center. "It saves them money but it also creates more opportunities for checking-account fraud."

Under federal law, creditors must disclose any automatic deductions to a customer's checking account. Electronic payments can be authorized by signing a form or attaching a voided check. But as Corbett learned, a creditor does not have to get written authorization from a consumer. Instead, it is up to the consumer to object (preferably in writing) to the proposed transaction.

And the electronic trickle is becoming a flood. Because of the nation's wide acceptance of online banking and the huge increase in the volume of automated checking-account withdrawals and deposits, the system that processes these requests is now clearing 10 billion electronic transactions a year.

Because of these changes, the Federal Reserve warned banks last year that "dishonest persons are using the automated clearing house to originate unauthorized debits."

Consumers have some protection against checking-account fraud in the Electronic Fund Transfer Act and the Uniform Commercial Code. For electronic debits, provided that you notify the bank right away, the bank typically is required to "recredit" your account with the missing funds - within 10 business days while it investigates.

"The law makes it necessary for consumers to check their bank statements often, so that any instance of checking-account fraud can quickly be brought to the bank's attention," says Professor Budnitz.

While banks are supposed to refund any unauthorized checking-account withdrawals, there are fewer consumer protections than there are for fraudulent credit-card charges. Furthermore, if the bank decides the charge is valid, it can take the money out again.

Page: 1 | 2