ARC: The case of the disappearing check

updated 3:06 p.m. ET March 9, 2005

NEW YORK - Call it the case of the disappearing check.

It used to be that when Georgia State University law professor Mark E. Budnitz mailed a check to pay his American Express bill, the check would come back with his monthly bank statement. These days when he sends his check, the bill is paid and the transaction is duly noted on his bank statement — but the check itself is gone.

Budnitz and a growing number of Americans are experiencing what is known as ARC, or accounts receivable conversion, which basically involves turning a check into a debit transaction.

Such electronic conversions involve just a fraction of the more than 35 billion checks written each year. But a trade group known as NACHA — The Electronic Payments Association says they are "the fastest growing payment application" in its three-decade history.

NACHA estimates some 1.25 billion consumer checks sent to pay credit cards, mortgages, insurance premiums and telecommunications bills were converted into ARC payments in 2004 and projects that the total could hit 2 billion this year.

Budnitz, who specializes in consumer law, said that even he was confused when he first confronted an electronically converted check.

"I was looking for my personal check," which normally would have been attached to the statement, he said. "It wasn't there. Instead it was listed under what my bank calls 'automated checks.'"

No consistent language
Part of the confusion for consumers is that there's no consistent language to describe the ARC transactions. Butnitz's bank may label them "automated checks," but another institution may call them "authorized transfers" and another simply "ARC."

And often the category label is used to describe not only ARCs but also direct deposits and the direct payment arrangements consumers set up with utilities and telephone companies.

It's even more confusing because these conversions are occurring at a time many financial institutions are moving to implement the Check Clearing for the 21st Century Act — better known as Check 21. Under the new law, banks can make images of checks and transfer these images electronically for clearing; consumers will get images of their checks with their bank statements, not the originals.

Elliott C. McEntee, president and chief executive officer of NACHA, which is based in Herndon, Va., said most consumers seem comfortable with the electronic systems. He said a recent survey conducted for the group found that just 4 percent of check writers have called their financial institutions in the past six months with questions about check conversion payments.

"We think it's a service that creates a win-win situation," McEntee said. "It's good for consumers, and it gets more paper out of the check-clearing system."

MORE FROM PERSONAL FINANCE

Personal finance Section Front

Answer Desk: Slow stimulus spending Helpful finance tips, or sneaky payday loans ad? New program helps manage student loan debt Recession hurts card industry, customers $60,000 in debt, and nothing to show Answer Desk: How to shrink credit card debt Newsweek: 5 ways to simplify student aid Living without the plastic cushion Number of millionaires shrank in 2008 Employers cutting back on 401(k) plans Personal finance Section Front   Add Personal finance headlines to your news reader: