Accepting checks online is legal under certain circumstances. Three laws were passed allowing Internet check acceptance: the Uniform Commercial Code, Title 1, Section 1-201[ 39] and Title 3, Sections 3-104, 3-403,2-403; the Code of Federal Regulations, Title 12Chapter II, Part 210 Regulation J, Federal Reserve Bank, Part 2, Sections 4a-201 to 4a-212and Romani v. Harris, 255 Md. 389.
The Federal Trade Commission outlines the requirements for accepting " phonechecks" here. One of the following three authorization options is required to accept a" phone check" :
- Written authorization -- a voided, signed check; a fax or writtenletter; or an online declaration in an order form
- Tape-recorded authorization -- not likely for online transactions
- Authorization by written confirmation -- an option appropriate to onlinechecks.
The written confirmation option requires the seller to send a confirmation to theconsumer before any check from that consumer is submitted for payment. The FTCstresses that the consumer does not need to receive the confirmation,only that it be sent before the check is submitted for payment.
Bank acceptance: Banks will vary on their comfort level inregard to accepting online checks. Experience indicates most will accept the checkswithout a problem.
Customer disputes: Customers have 30 days from the receipt of theirbank statement to dispute that the check was not authorized. One vendor claims thatof seven million checks authorized since 1994, only 150 disputes have occurred.
How It Works
Step 1 is to add " payment by online check" to the payment options on yourWeb site. This is where you would collect the customer's checking account details.
Step 2 is processing the check. There are two options here:
Option 1 -- print a check. There are numerous softwarepackages that will print the check on your inkjet or laser printer. (Some vendorsrecommend special toner or ink; others don't.) Then, just add the newly printedcheck to your regular deposit for the bank.
Option 2 -- use automatic deposit. Services such as OnLine CHECK Systems will send the payment directly to your bank, sending e-mail confirmations to the merchant and thecustomer.
Here is a sampling of vendors and the costs of their products andservices:
Manually printed checks:
Chekfaxx, $189-699 for software
OnLine CHECK Systems, $150 setup, 2.5% of eachtransaction
PaymentMechanisms Designed for the Internet
Good, comprehensive list of links to existing payment options.
Mediated Three-PartyPayment Methods
Includes section on check-based online payments.
Another online vendor. Includes optional check verification and checkguarantee.
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