AutoPay via ACH or credit card versus writing a paper check: Which is safer for consumers?
Many consumers now pay via some sort of AutoPay whereby their checking account or credit card is debited automatically for payment. Some consumers still write a paper check possibly for concern over the safety of electronic payments. So which option is safer?
Bill payment via paper checks has been around a long time [1959 was implementation of MICR ink making automated sorting possible]. Fraud and/or theft were not considered issues that had to be dealt with so verification/authentication measures have not been key components of check usage.
If a consumer reports a check [a deposit slip works as well] as stolen or fraudulent their bank is NOT liable nor has any legal obligation to replace funds lost. In addition the consumer has to prove the checks were not authorized via strict procedures-the burden of proof again is completely on the consumer. If the thief wrote bad checks in 20 different jurisdictions, you may be dealing with this for years. The thief can keep writing checks on your account after you’ve reporting them as fraud and even after you’ve closed the account. Every time the thief writes a bad check on a closed account, your bank may reopen the account and send you an NSF [think $25 fees] notice. You will have to individually dispute these as well. Finally your account (and possibly your name) will go into ChexSystems (the equivalent of the credit bureaus used to check people’s checking account history) as fraudulent, which may make it difficult or impossible to obtain a new checking accounts for many years. There are additional concerns including the thief being able to order new checks in your name. Some statistics:
- The AFP Payments Fraud and Control Survey, dated 2012: Checks continued to be the dominant payment form targeted by fraudsters, with 85 percent of affected organizations reporting that their checks were targeted. ACH and credit card fraud affected approximately 20% of organizations.
- Four out of five of these organizations indicated that their highest dollar fraud resulted from checks, as compared to 8% reporting credit cards caused their highest dollar fraud, and 5% reporting ACH
- More than 540,000 Social Security and SSI checks were reported lost or stolen in fiscal year 2010 and had to be reissued.
- Nearly 50,000 checks issued by the Treasury Department in fiscal year 2010 were altered or fraudulently endorsed.
- Each year, nearly 1.3 million people report problems with paper checks to the Treasury Department.
Contrast paper check protection measures with ACH or credit card processing. When paying by credit card or ACH the consumer has a 60 day window to report to their bank that they do not recognize a charge to their account. If the consumer suspects fraud this window can extend much further. Both ACH and credit card world industries have strict operating rules that protect the consumer from unauthorized debits. Bank and credit card companies are legally obligated to replace funds debited without consent.
So in comparison paper checks do not have consumer protection components built into their infrastructure making it much more involved [and expensive] if fraud occurs. This makes the ACH or credit card billing option a safer, more secure transaction for consumers.