Check conversion is the process of converting a consumer check payment into an electronic payment.

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1 J&B SOFTWARE ARC - FAQ ARC Frequently Asked Questions & Answers Q: What is check conversion and how does it work? Check conversion is the process of converting a consumer check payment into an electronic payment. The billing company notifies the consumer that it is using the check conversion process, usually with a notification on the bill or with an enclosure in the bill. The consumer writes a check to a billing company (i.e., credit card issuer, utility company, etc.) for the amount of the payment. The billing company converts the paper check into an electronic payment, makes a copy of the check, destroys the original check and stores an image of the check. The company billing the consumer instructs its financial institution to debit the consumer's account for the amount of the check. The company itself has no access to a consumer account. The payment is automatically withdrawn from the consumer bank or credit union account. This payment is easy to track because it shows up on the bank or credit union statement with the date of the payment, the name of the billing company, the check number, and the amount of the payment. The consumer's account statement may show the transaction as an Electronic Funds Transfer (EFT), similar to or categorized with the ATM withdrawals, Direct Payments, other electronic payments or remain with in the check listing. The bank or credit union statement lists the date of the payment, the name of the billing company, the check number, and the amount of the payment. The information on the bank or credit union statement is generally proof of payment. Converting checks to electronic transactions results in savings to the U.S. economy, including companies and consumers. Electronic transactions can result in fewer bad checks, earlier fraud detection, fewer errors, more privacy and reduced check processing costs. Consumers who experience check conversion have greater protection under the Electronic Funds Transfer Act of 1978, known as Federal Regulation E. Checks are converted into electronic transaction and the transaction is completed via the Automated Clearing House (ACH) network, the same safe, reliable system used by millions of companies and consumers for Direct Deposit of payroll and by the Federal government for benefit payments such as Social Security. The ACH system is a closed, private network that is not accessible to the general public and is not part of the Internet. It is an extremely safe network that has been in existence for over 30 years. Q: Is check conversion new? No. Check conversion has been in place for five years using the same secure Automated Clearing House (ACH) system that the Federal Reserve and the nation's financial institutions use to process electronic payments The ACH is also the network that has been used for over 30 years for Direct Deposit and Direct Payment. At present, check conversion is for consumer payments only.

2 Q: What is Accounts Receivable Entry (ARC)? Converted checks have a unique identifier code, called a standard entry class code that distinguishes them from other ACH transactions. Accounts Receivable Entry (ARC) is the standard entry class code for check conversion. Q: What are the benefits of check conversion? Converting checks into electronic transactions saves money for the U.S. economy, consumers, billing companies and financial institutions. Electronic transactions can result in fewer bad checks, earlier fraud detection, fewer errors, more privacy and reduced processing costs. Check conversion also provides easier recordkeeping for consumers because the name of the billing company, the date of the payment, the check number, and amount of the payment is listed on account statements. Q: Who benefits from check conversion? Everyone benefits - consumers, companies and the U.S. economy. No other industrialized nation relies on paper checks as much as the United States. The technological advances and advantages in electronic payment processing are advanced to the point that the processing is seamless and for the most part transparent and beneficial to the consumer and company alike. Q: How widespread is the use of check conversion? Check conversion is an increasingly common process of converting paper checks to electronic payments. NACHA estimates that check conversion transactions increased by more than 700 percent from 2002 to Q: Does check conversion go by other names? Check conversion may also be called Accounts Receivable Entry (ARC), electronic check, e- check, electronic check processing, and ACH. Q: What is the relative cost of processing a check conversion versus a check payment? The Federal Reserve estimated that the U.S. economy saves $1.62 per ACH transaction vs. a check in direct and indirect costs. ACH use in 2000 saved the U.S. economy - consumers, companies, organizations and the government - an estimated $8.4 billion. Q: Is check conversion governed by any regulations? The Federal Reserve's Regulation E and the ACH operating rules regulate electronic payments. Because of Reg E and NACHA's operating rules, consumers have greater protection with check conversion. Q: Is check conversion legal? Check conversion, one of several methods of electronic payment, is completely legal. Q: Is check conversion safe and private? Yes. Electronic payments are safe and private - a network of computers does the work. Encryption, message authentication codes and other security procedures protect the information.

3 Q: How did the movement toward electronic payments and check conversion begin? Electronic payments, such as Direct Deposit, have a 30-year history of safety, security and privacy. Due to the costs of processing checks, the financial services industry has been encouraging a move from paper-based payments to electronic payments for many years. Q: Exactly how is a payment made under check conversion? Checks are converted into electronic payments via the Automated Clearing House (ACH) network, the same safe, reliable system used by hundreds of thousands of companies for Direct Deposit of payroll and by the Federal government for benefit payments such as Social Security. The ACH system is a closed, private network that is not accessible to the general public and is not part of the Internet. It is an extremely safe network that has been in existence for over 30 years. Q: What are the possibilities of fraud or other problems in the ACH network? In over 30 years there have been very few instances of fraud in this system. Any occurrence has been quickly resolved. The system is very safe - banks use it every day to transfer billions of dollars. Electronic payments are protected under Federal Regulation E which gives consumers 60 days from the date their account statement was postmarked to dispute an electronic transaction that has posted to their account. Questions that Consumers May Ask Q: Who authorized a billing company to convert my check? The billing company notifies the consumer that it is using the check conversion process, usually with a note on the bill or with an enclosure in the bill. When you mail in the payment, you have authorized that your payment can be converted from a paper check to an electronic transaction. Q: Do billers have to notify me in advance of switching to check conversion? Yes. The notification can occur in a number of ways - a notice inserted in your bill or a note on the bill itself. Each billing company can decide how to notify its customers. Q: If one of my billing companies' institutes check conversion, am I required to comply? Yes, unless the billing company offers an opt-out provision. Q: What happens to my check after I send it to the billing company? The billing company must destroy your original check within 14 days and store an image of the check for two years. Many billing companies automatically VOID the check prior to destroying it. Destroying the original check is a consumer safeguard to avoid duplicate payments. Q: Can a billing company take extra money from my account using check conversion? No. Under Regulation E and the ACH operating rules, only the amount of the check is allowed to be deducted. The ACH operating rules and Reg E provide protection if there are unauthorized debits from your account. Q: Can the billing company see how much money I have in my account? No. Your financial institution protects your financial information. While the biller's financial institution debits your account, the biller itself has no access. You have more financial privacy with check conversion.

4 Q: What if the billing company converts the wrong amount? Problems with check conversion are rare. Electronic payments generally have fewer problems and faster error resolution than checks. But, if such a problem should occur, contact the billing company immediately. Q: What if the bill is deducted twice, once as a check and again as an electronic payment? The system was designed with safeguards to avoid this problem. However, in the event of any such error, alert the billing company or your financial institution. When your check is converted to an electronic payment, you are protected if there are unauthorized payments under Regulation E, the same regulation that protects against unauthorized use of an ATM or debit card. Q: Where does a check conversion show up on my account statement? A check conversion may appear in the same space as ATM withdrawals, Direct Payments and other electronic payments, or it may remain in the check listing. The name of the company paid, the check number, and the amount and day the payment was made will be on your bank or credit union statement. Q: How will I recognize the payment on my account statement? The "payee" on your account statement should match the "payee" on the check you wrote. The check number will be included in the transaction detail on your account statement. Q: What if I have a debit on my account statement from a company I don't recognize? This debit may be from a company that you made a bill payment to recently. See if the amount matches the amount of a check you wrote. If not, contact the biller and/or your financial institution and ask for clarification. Q: What if it turns out the debit is unauthorized? That is extremely unlikely. In such a rare case, you will have to sign an affidavit saying that the transaction was unauthorized. Your financial institution will then return the transaction to the company and credit your account. You should contact the billing company to discuss this action. Q: Can I get a copy of the image of my check? Billing companies must provide copies if requested. You can also ask your bank or credit union to obtain a copy of your original check from the biller's bank. However, all of the relevant information will be on your account statement, including name of billing company, the check number, and the date and amount of payment. Q: What happens if I have a dispute with the billing company? First, call the billing company to work out the dispute. If that is not satisfactory, call your financial institution and explain the situation. With electronic payments, your rights against unauthorized payments are protected by the Federal Regulation E. Q: Can I put a stop payment on a check conversion? Yes. As with a paper check, you place a stop payment before the payment is posted to your account.

5 Q: I placed a stop payment on a check but it went through anyway. Why did this happen and can I get my money back? A stop payment must be placed before the check is converted to an electronic payment. You must report errors to your financial institution within 60 days after your account statement was postmarked. Q: Does my payment clear faster with check conversion? What happens to check float? Generally, the payment may clear faster when a company has converted the paper check to an electronic payment. Check float may be impacted; however this can cut down on check fraud. Consumers should be sure they have adequate funds in their checking accounts to cover the amount of their checks. Q: If my check is destroyed, how can I prove that I made the payment? Your financial institution's account statement will show the date, the check number, the name of the billing company and the amount of the payment. Your account statement is generally accepted as proof of payment. Q: Why is it so important to switch to electronic payments? The safety and efficiency of the nation's payments system is in everyone's best interest. The U.S. economy and all Americans depend on being able to make and receive payments routinely, safely and efficiently. Localized natural disasters and events show that disruptions in the form of undelivered, lost or stolen checks may interfere with the smooth functioning of the payments system. The Federal Reserve, which has official responsibility for overseeing the U.S. payments system, spends considerable resources on guaranteeing the safety of the payments system and exploring ways to increase efficiency. The efficiency of the payments system requires shifting from checks to electronic payments. Electronic processing is generally safer, faster, more private and less costly than paper processing. The cost of processing a Direct Deposit through the ACH is $1.022 less then processing a check and the cost of processing a Direct Payment through the ACH is $ less then processing a check. Electronic payments can reduce fraud, which costs the economy billions each year. The most recent ABA survey on check fraud estimates financial institutions lost $698 million in 2001 and attempted check fraud was $4.3 billion. Electronic payments provide consumers with greater protection under Federal Regulation E that spells out specific protections and error resolution procedures. No electronic payment has ever been lost. Electronic payments are confidential. Clearing checks involves many people, electronic payments are cleared automatically. Key Messages and Proof Statements Message 1 - The Payments System The safety and efficiency of the nation's payments system is in everyone's best interest.

6 The U.S. economy and all Americans depend on being able to make and receive payments routinely, safely and efficiently. Localized natural disasters and events show that disruptions in the form of undelivered, lost or stolen checks may interfere with the smooth functioning of the payments system. The Federal Reserve, which has official responsibility for overseeing the U.S. payments system, spends considerable resources on guaranteeing the safety of the payments system and exploring ways to increase efficiency. Message 2 - Electronic Payments The efficiency of the payments system requires shifting from checks to electronic payments. The financial services industry supports moving the U.S. economy from a payments system based on checks to one based on electronic payments over time-tested, secure networks. The migration from checks to electronic payments began over 30 years ago with the introduction of reliable electronic products like Direct Deposit and Direct Payment. According to Federal Reserve research, in 2001 consumers made 26.1 billion payments electronically and 21.6 billion payments with checks. Electronic processing is safer, faster, more private and less costly than paper processing. The cost of processing a Direct Deposit through the ACH is $1.022 less then processing a check and the cost of processing a Direct Payment through the ACH is $ less then processing a check. Electronic payments can reduce fraud, which costs the economy billions each year. The most recent ABA survey on check fraud estimates financial institutions lost $698 million in 2001 and attempted check fraud was $4.3 billion. Electronic payments can reduce errors. Clearing checks involves many people, electronic payments are cleared automatically. Electronic payments provide consumers with greater protection under Federal Regulation E that spells out specific protections and error resolution procedures. No electronic payment has ever been lost. Message 3 - Check Conversion Check conversion is the process of converting a consumer paper check into an electronic transaction. The billing company notifies the consumer that it is using the check conversion process, usually with a notification on the bill or with an enclosure in the bill. The consumer writes a check to a billing company (i.e., credit card issuer, utility company, etc.) for the amount of the payment. The billing company converts the paper check into an electronic payment, makes a copy of the check, destroys the original check and stores an image of the check. The company billing the consumer instructs its financial institution to debit the consumer's account for the amount of the check. The company itself has no access to a consumer account. The payment is automatically withdrawn from the consumer's bank or credit union account. This payment is easy to track because it shows up on the bank or credit union statement with the date of the payment, the name of the billing company, the check number, and the amount of the payment. The consumer's account statement may show the transaction as an Electronic Funds Transfer (EFT) payment similar to or categorized with the ATM withdrawals, Direct Payments, other electronic payments or remain with in the check listing. The statement lists the date of the payment, the name of the billing company, the check serial number, and the amount of the payment. The information on the bank or credit union statement is generally

7 proof of payment. Converting checks to electronic transactions results in savings to the U.S. economy, including companies and consumers. Electronic transactions can result in fewer bad checks, earlier fraud detection, fewer errors, more privacy and reduced processing costs. Consumers who experience check conversion have greater protection under the Electronic Funds Transfer Act of 1978, known as Federal Regulation E. Checks are converted into electronic transaction and the transaction is completed via the Automated Clearing House (ACH) network, the same safe, reliable system used by millions of companies and consumers for Direct Deposit of payroll and by the Federal government for benefit payments such as Social Security. The ACH system is a closed, private network that is not accessible to the general public and is not part of the Internet. It is an extremely safe network that has been in existence for over 30 years. Message 4 - The New Reality The migration from paper to electronic payments is rapidly evolving due to the enormous benefits of electronic payments - adding efficiency to the nation's payment system, savings to business, more privacy, fewer errors, and greater protections for consumers. Partner with J&B Software We have experience working with the leading ACH originators to deploy ARC solutions that are in place today with decision support tools that enable our customers to realize the benefits of conversion. The passage of Check 21 introduced even more variables that need to be considered, when evaluating your options. J&B has the flexibility to accommodate ARC, Check 21 and paper processing, or a mixture of all three. We ve successfully deployed hundreds of image-based processing solutions with sophisticated parsing, recognition and archiving components. We welcome the opportunity to talk with you and begin planning an electronic check strategy that meets your specific requirements. Our Proven ARC Solutions Reduce credit & fraud risk Improve funds availability Accelerate return notification Lower deposit fees Decrease return items Cut hardware/encoding costs 510 E. Township Line Road, Blue Bell, Pa Voice: (215) or Fax: (215) Source: Check Conversion Education Coalition