Legal and Ready for UseHere's what the Federal Trade Commission has said:
"Despite the potential for fraudulent misuse, demand drafts are a completely legitimate, though relatively unfamiliar, payment method. Consumers are generally aware that arrangements can be made for recurring payments, such as mortgage payments or car payments, to be withdrawn automatically from their checking accounts. The surprise for many consumers is that withdrawals from their checking accounts can happen on a one-time basis, with no prior written authorization....During the rulemaking, the Commission learned that millions of consumers use demand drafts in lieu of credit cards and that demand drafts are used by Fortune 500 companies, airlines, car rental companies, insurance companies, and mortgage companies. In fact, demand drafts are used by a variety of businesses that are characterized by quick turn-around transactions, and as a payment alternative for consumers who do not have, or would rather not use, credit cards. Demand drafts are a large and growing payment mechanism." -- FTC before the House Banking Committee, Washington, D.C., April 15, 1996
Yes. With Nova Check Mates, you too may take checks online, by fax or phone when it's impossible or not practical to have the customer present. No signature from your customer is required. Draft your customers' accounts by printing the information they provide on the official check safety paper that comes with the software. (A sample HTML form is provided that works with the formmail cgi script that is used by many hosting companies, including our favorite, NovaHosting.com). Then cash or deposit.
Fax, email and telephone checks are legal tender with proper authorization from your customer. Once you've received pre-authorization, no signature is needed.
Proper Verification Includes:
Written Authorization via Email or FAX, i.e., an Order Form -- Any form of written authorization from a consumer is acceptable. For example, a consumer may transmit written authorization to the seller or telemarketer by facsimile, or may send a "voided" signed check as written authorization.
For Phone Orders, Recording the Authorization with Customer's Permission -- Any tape recorded authorization for a demand draft must clearly demonstrate that the consumer has received each of six specific pieces of information about the transaction and that the consumer has authorized that funds be taken from his or her bank account based on the required disclosures that the seller or telemarketer has provided. Without more, a general question such as "Do you understand all the terms of the sale?" followed by a consumer's "uh-huh" or "yeah" is not enough to demonstrate authorization. The tape recording must show that the consumer received each piece of information listed below and that, based on that information, the consumer understood and acknowledged each term of the transaction, and authorized the transaction. A consumer must be told and must acknowledge: the date of the draft(s); the amount of the draft(s); the name of the consumer from whose account funds will be paid; the number of draft payments authorized, if more than one; a telephone number answered during normal business hours that the consumer can call with questions; and the date of the consumer's authorization.
Sending Written Notice to Customer Prior to Deposit, i.e., an Email -- If a seller or a telemarketer opts for verifiable authorization by means of a written confirmation, the confirmation must be sent to the consumer before any check, draft, or other form of negotiable paper bearing that consumer's bank account information is submitted for payment. That does not mean that a seller or telemarketer must wait to submit this information until a consumer receives the confirmation; it must only be sent before the check, draft, or other form of negotiable paper is submitted for payment. The written confirmation must contain all the information required in a tape recorded authorization. Additionally, if a seller or telemarketer chooses to use written confirmations, the seller or telemarketer must have a refund policy in place, and must disclose in the written confirmation how to obtain a refund in the event the consumer disputes the written confirmation. (Of course, the Rule's prohibition on misrepresenting a refund policy, applies in the context of obtaining verifiable authorization by means of written confirmation.) The Rule leaves it to the seller or telemarketer to determine what procedures are necessary to ensure that confirmations are sent prior to submission, to put such procedures in place, and to ensure that records are generated and maintained to document that confirmations are sent at the appropriate time and that required refunds are provided.
In actual practice, this verification will never be needed unless your customer later claims that no authorization was given. We have never had this happen here at ColDen Communications, and I don't think it will happen to you if your dealings are honest. It doesn't seem to be much of an issue with small checks. The larger your check amounts, the more you may want to maintain verification, i.e., request a driver's license number.
Another issue is fraudulent dealings from the unscrupulous. For good reason, the FTC has ruled: "The requirement for verifiable authorization for "phone checks" can be satisfied by an advance written authorization from the consumer, by a tape recording of the consumer giving express oral authorization, or by a written confirmation of the transaction sent to the consumer prior to the submission of the draft for payment. If the tape recording method is used, the seller or telemarketer must provide the consumer's bank, upon request, with a copy of the consumer's verifiable authorization. If the post-sale written confirmation method is used, the seller or telemarketer must offer, and at the consumer's request provide, a full refund to the consumer in the event the confirmation is inadequate or incorrect. The seller or telemarketer must keep the consumer's verifiable authorization for two years from the date of the sales transaction."
So we strongly advise that you keep your authorizations. Fortunately, NOVA Check Mates automates your database to make the task easy. Note that we will NOT knowingly sell our software to "scam artists."
The Fine Print
Paper drafts are explicitly established as a legal method for payment as provided in: Uniform Commercial Code, Title 1, Section 1-201  and Title 3, Sections 3-104, 3-403, 2-403 Code of Federal Regulations, Title 12 Chapter II, Part 210 Regulation J, Federal Reserve Bank, Part 2, Sections 4a-201 to 4a-212. The Federal Trade Commission in late 1995 proposed rules that became law in January 1996 (Regulation 16CFR Part 310) that requires businesses who take checks over the phone to have a "verification" procedure in place. Similar laws have been passed recently in Canada.
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