Electronic Check Conversion and Electronic Return Check Fees

Regulation E requires some documentation whenever a check is converted into an electronic funds transfer. It also requires documentation in order for a payee to electronically collect a returned check fee.

The good news is that neither of these documentation requirements applies to the institution that holds the consumer’s account. The documentation requirement for converting a check into an electronic funds transfer applies to the merchant who wants to do the conversion. Similarly, the documentation requirement for electronically collecting a returned check fee applies to the person who wants to collect the fee.

A person who wants to convert a check into an electronic funds transfer must provide the consumer with a notice to the effect that the transaction will be processed as an electronic funds transfer. The consumer authorizes the conversion by receiving the notice and proceeding with the transaction. [12 CFR 1005.3(b)(2)(ii) and (iii)]

A person who wants to electronically collect a fee for a returned check must also provide a notice to that effect to the consumer. The consumer authorizes the electronic collection of the fee if the consumer receives a notice and proceeds with the original transaction. [12 CFR 1005.3(b)(3)(i)]

Again, the documentation required with these transactions applies to the persons initiating the electronic funds transfer. They do not apply to the institution that holds the consumers account.