Has anyone had a complaint for a declined bank draft? A person takes a check to the utility company to have their water bill drafted automatically out of their checking account. The draft is subsequently declined. Theft by check? *check or sight order for payment* ?



John

Our bad drafts are usually from fitness clubs. The person signs a contract and agrees to pay the fees monthly by an automatically-generated draft. Eventually they stop working out or move from the area and close their account. The fitness club continues to generate the drafts and they are returned.
My position is that the account holder did not "issue or pass" the draft. He merely authorized the complainant to issue a draft at a specific time in the future. I tell the complainant that the automatic payment feature in their contract does not make breach of the contract a criminal matter.

The situation you describe also involves the use of a draft to "pay" an existing account. The draft did not precede and thus did not induce the transfer of possession of the goods or delivery of the services and thus could not be shown to have rendered the consent of the seller ineffective.

What is your position on merchants (such as WalMart, Gap, Old Navy, etc) who process checks at the point of sale as ACH debits. (e.g. - they scan the check and process it like a debit card and give the voided check back to the customer.) Also, do you see any problems with creditors who convert mailed in payments to ACH debits? Many credit card companies are starting to do this.

The conversion of a check into an electronic item at the cash register is usually called Electronic Check Presentation (ECP). The check is run through a magnetic number reader that captures the account and routing number. The check itself is returned to the consumer-usually with a 'Void' stamp on it, and the customer is presented with a slip of paper to sign.

The slip of paper is a contract that authorizes the merchant to draw money out of the account in question. It typically also allows the merchant to re-present the item if there are not enough funds in the account, and to charge (and electronically extract) a $25 fee if the first attempt to extract the money was unsuccessful.

The slip contains no assertion that the funds are in the account, and even contemplates that they may not be there when the ACH item goes through.

I think we would have a very hard time showing that the customer was obtaining goods by deception if the account were insufficient. A closed account scenario would be different, because I think there is an implied assertion that there is at least an existing account that the ACH entry could seek payment from.

We usually do not get to the theoretical problem, however, because we have the practical problem of proof of identity. Rather than a check with identifiers written on it, our identification evidence is limited to a tiny, electronically preserved scrawl.

I have made one case involving ECP, and that involved a subponea of the defendant's account to establish intent, marshalling extraneous offenses and a photospread to establish identity. It would be hard to justify spending those resources on a $50 check to Walmart.

John (Boone): Considering we have previously discussed how the ECP practice makes it virtually impossible to prosecute for forged checks "passed" in this fashion, why are these businesses utilizing it? Is it merely because submission for an ACH debit is quicker than running the pieces of paper through the normal banking process? I thought maybe they could tell immediately whether there were sufficient funds in the account, but apparently that is not the case. The phrase "dumb and dumber" keeps flowing through my mind as I contemplate this.

I am even more baffled by the increasing use of the practice by companies accepting checks by mail for monthly payments who then convert to an ECP without a signed acknowledgement from the person making the payment. They would seem to be even more removed from any ability to go after a declined payment. My guess is that the benefit of being able to clear payments a few days faster outweighs the amount they will have to write off as uncollectible.

As an aside, I refuse to do business by check with these merchants because I see very little fraud protection in place. With a check, in the event of fraud I have the bank on my side and with a debit card I have both the bank and the POS vendor (VISA or MasterCard.) When a merchant converts my check to an ECP I have only the merchant to stop any fraud. My fear is that a criminal will use forged or stolen checks at an ECP merchant. The person in whose name the check is drawn will have little or no protection against this identity theft/fraud.

What was called ECP when the procedure was first rolled out a few years ago is now called "POS (Point of Sale)Conversion". The check is converted into an ACH transaction.
The procedure is invariably coupled with 'RCK', which is electronic check representment. If the item fails to pay, the merchant (actually, a 3rd party processor) runs it through up to two times again and if it pays later, the merchant is paid and gets the bad check fee as well.
POS Conversion and RCK make sense for many merchants for two reasons; cross-subsidization and labor cost reduction. The labor cost reduction is easy: nobody has to fill out deposit slips for the checks and haul them to the bank, nor do they have to make collection calls to good, if negligent customers.
The cross-subsidization involves extracting the NSF fee, automatically, from those good but negligent customers and using it to offset the losses from those who are really enganging in fraud. Cross subsidization will work until the stores have attracted enough crooks to swamp the extra revenue extracted from the negligent customers.