Electronic money transfers aren't just for the big banks anymore. Consumers, knowingly or not, are initiating these transactions much more now than ever before.
"Consumers need to know exactly how much money is in their checking accounts so they have enough to cover any checks they have written and any automatic debits," said Irene Leech, associate professor of apparel, housing, and resource management in the College of Liberal Arts and Human Sciences at Virginia Tech. "It may cost the consumers if there are insufficient funds in an account."
According to Leech, consumers are losing the "float" — the short amount of time consumers used to have between when they wrote a check and the company cashed the check. "It was time in which deposits could be made to keep enough money in the account to cover the check," said Leech.
Many firms use electronic transactions because they are quicker, less costly for the company, and reduce labor. "Electronic transfers are now reaching the everyday level of buying shoes and paying the gas bill," said Leech. "This means money immediately comes out of your account."
In addition, more and more stores are using another electronic fund transfer known as electronic check conversion. When a customer pays the bill with a check, clerks will ask the customer for a blank check which is run through a computer and is given back to the customer. In that action, the money is transferred out of the customer's account into the store's account—just as a debit card works. The store uses the blank check to get electronic information about the check number, the account number, and the banks' identification number, and money is debited from the account immediately.
Firms that are doing this have to make an effort to notify the customer and provide a receipt with information about the purchase or the bill paid. The transaction should appear on the account statements that consumers receive from their financial institutions. If there is any problem or an error, consumers have only 60 days to make a complaint.
"If there isn't enough money in the account for the purchase, the consumer is responsible in the same way as if a check 'bounced,'" said Leech. The consumers can be liable for all the fees and costs that can accumulate when there are not sufficient funds in the account.
There is a second concern for the consumer, Leech said. There is no longer a physical check—a piece of paper--to use if consumers need to prove that a bill is paid. If proof is needed that a bill was paid, consumers can go to the financial institutions and request a substitute check.
"The consumers need to request a copy of both the front and back to use a substitute check," Leech said. "And there may be a fee for doing this."
Electronic transfers are increasingly the way that financial transactions are being conducted. Many financial institutions no longer return any checks for many customers. It varies with the agreement that individuals have with their financial institutions about checks, but many customers receive only a digital copy of the front of their checks.
The financial institutions' statements will list the new electronic fund transfer separately also, she said. The statement will have the automatic account transactions such as loan payments, the list of checks that went through the account, and then an additional listing of electronic transfers.
"Consumers need to be aware of all the different ways funds come out of their accounts," said Leech.