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In the 1970s the banking industry, seeking to reduce the cost of processing the growing volume of paper checks, developed an electronic payments network that enabled banks to send payment information back and forth to each other electronically. Processing a payment through the ACH (Automatic Clearing House) network costs banks about one-fifth what they spend to process a paper check. The network also makes it easier for banks to avoid phony, forged, or doctored paper checks. However, as the ACH network has grown in scope and popularity, traditional check fraud is increasingly being replaced by a new problem—electronic ACH fraud.
If you think you are protecting yourself from fraud by always using checks, think again. Even if you do not pay your bills electronically or use direct deposit, your banking information has probably traveled over the network. Companies that accept checks can now take the information off a check and finish processing the payment through the ACH network. If you pay a check in person and the merchant scans the check and hands it back to you, that payment is going to clear through the ACH network. If you mail a check, it may be converted into electronic form. When this happens, the paper check is destroyed and replaced with an electronic image. What are the dangers associated with ACH fraud? - In the ACH network, automatic payment transactions are initiated by the business, not by the person paying the bill.
- Telephone payments are now accepted under the ACH system, but unlike other types of ACH transactions, no written approval is required. All someone needs to initiate a phone payment is your bank account and routing numbers.
- No one is required to notify you in writing that a telephone payment has been made in your name--the first place you will see the information is typically your bank statement
How can you make your bank account safer? Your best defense is to review your bank statements regularly, and to protect your checking account information and checkbook as carefully as you protect your credit cards and other personal financial information. If you spot a questionable transaction, report it to your bank immediately. Even if you have never paid a bill by phone or through automatic deduction, your bank account is vulnerable. Given the relative ease with which a fraudster can access your account through the ACH network, you must be vigilant. Related Research Commentaries 10 Tips on Avoiding Financial Fraud Protecting Yourself Online: Self-Surveillance
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In this case, I think it's important for us to realize that ACH fraud does exist and that only using checks won't prevent fraud from happening. Much like the piece I wrote earlier on Self-Surveillance, people must be vigilant and pay attention to their bank accounts, online statements, etc.
Indeed, the ACH network brings to us many benefits, but it also brings a renewed urgency for people to pay attention to their financial accounts and records. Technology sure is great, but it sure comes with a lot of problems.