Dear Liz: I pay my bills and credit card balances monthly by check rather than by online banking. This is because I don’t want to provide a clear path for a possible unscrupulous company or person with access to my account to simply take extra money from my account. Are my worries about this possibility reasonable? Or is there simply no possibility of theft from my account in this way?
Answer: It’s not that your fears aren’t reasonable. It’s that you’re putting too much trust in paper checks.
Pull out one of your checks and take a close look at it. Along the bottom is a series of numbers that include the bank’s routing number and your account number. That information, along with your name and address printed on the check, is everything an “unscrupulous company or person” needs to raid your checking account.
Once the bad guys have your check, they can alter the amount, counterfeit a new batch of checks or take over the account by adding themselves as joint account holders and changing the address, among many other possibilities. Or they can set up an electronic transfer out of your account. This is one of the reasons people in debt are told not to give their bank routing and account numbers to debt collectors, since unscrupulous collectors can clean out the account.
Furthermore, paper checks don’t have the federal protections that cover electronic transactions. Banks are required to investigate reports of fraudulent electronic payment within 10 days (or within 45 days if the bank provisionally credits the disputed amount, up to $2,500, to the consumer).
But users of paper checks are covered by a patchwork of state laws and subject to the agreement they signed with their banks, which may not provide them with as much protection.
So paper checks aren’t safer than electronic transactions. It’s just your familiarity with this form of payment that makes you think you’re protected.
Liz Weston is “The most-read personal finance columnist on the Internet” (Nielsen/NetRatings) and author of “The 10 Commandments of Money” and “Your Credit Score.”