why doesn't bank allow using internet or automated phone to authorize checks?

General Questions
#1

why can’t the bank give us an option of making all our checks unauthorized by default, and then if I so wish I can authorize either on check-by-check basis or else by short time window, e.g. all checks written in so-and-so time period are authorized.

This could be done not just online but also through automated phone robot, much like they give us credit card balance by phone.

So, why don’t they do it? Considering how trivial it is to forge a signature, why do they require people to risk theft of checks and then, if God forbid that happens, jump through bureaucratic hoops trying to undo the damage?

#2

That would throw such a big wrench in the system. The bank wants checks cleared in 24 hours, not when the writer gets around to it. They would have to charge (hopefully you, the person who requested the service) such a huge fee for the support staff that’s going to have to field the millions of calls from people wondering why the check they deposited into their account hasn’t cleared yet.
On top of that, I’d be rather annoyed if you wrote me a check, but I have to sit around and wait for you to authorize it. What if you go on vacation and I’m left hanging.
Also, that gives you the ability to float checks and “clear” them as you have the money in your account, but I suspect the banks would find a workaround for that.

I just can’t see it being a good idea. The banking industry moves extremely fast, and the customers demand that. I can’t imagine them slowing it down because a few people (which would eventually turn into lots of people) want to be able to authorize each check individually). Fraud simply isn’t a big enough problem to warrant that. You have to have so much money ripped off of your account before they’ll even look into it. A friend of mine had about $10,000 written in forged checks. The bank credited the account, they even had the person on camera cashing the check, but it wasn’t worth it to them to go after the forger.

#3

How much are you out on the stolen checks, so far?

#4

Checks are negotiable instruments. The goal of the laws pertaining to negotiable instruments is to allow them to be treated as much like cash as possible. Adding your additional layer of authorization would undermine that. Who would take checks if the issuer could deny payment on them indefinitely?

As for forged signatures, the owner of the checking account is in the best position to ensure that his checks don’t end up lost or stolen.

#5

Large banks offer their commercial accounts a service called “Positive Pay.” This is about as close as you can come to what you describe. Basically, Positive Pay puts a stop payment on all checks except the ones on a list that the customer provides to the bank. There is also an option for the customer to review other checks and OK them during a short time interval during which the bank can still return them unpaid (generally 24 hours).

This is not a free service. It is generally used by commercial customers who issue large volumes of checks to the public. I don’t know whether you could get it on a personal account if you were willing to pay. If you are seriously interested in such a service, contact the commercial banking department at several banks to see what they can do for you.

You might also note that many banks offer a free or low-cost online billpay service. While this is not exactly what you want, you could use it to minimize the number of personal checks you put into circulation.

#6

yes, I think Positive Pay sounds like what I am thinking about.

Re criticism of people upthread, I don’t mean authorization of checks while they are being cleared at the bank. I mean preemptive authorization of a check at the moment I write it and before I send it out. The recipient of the check wouldn’t even know about any of the authorization stuff - from his standpoint either the check clears normally or it fails to clear, no different from check not clearing due to lack of funds on my account.

So if the positive pay is not now easily available to regular people, perhaps this is an unfilled business niche? Could a new company (not sure if it has to be a “bank” or not) provide people with a checkbook and the authorization interface and then have them cover their check expenditures via billpay from their regular bank account?

#7

That sounds like something that can be done already through your bank’s online banking system. If you’re really worried about fraudulent payments going to someone outside a narrow list of approved payees, shred your checks and set up your payments online. The payments won’t necessarily be electronic; they can print an actual check and mail it.

My credit union will contact me if an unusually large debit card payment comes through, but they won’t question a check. Once I write a check out to someone and send it, I’ve already authorized that party to receive payment. I can certainly see why a business that routinely sends out lots of checks would pay for a service like Positive Pay, but I doubt it would be necessary for most individuals.

#8

fine, maybe that would work. But I still think that authorization would have been an easier and more convenient approach. Why should I notify the bank of address of the recipient? Why should I wait until their clerks process my order and mail the letter? Why should my check be sent separately from other stuff that I might want to send along with it?

Why can’t I just call a phone number, put in the pin, authorize the check #211 for an amount “between $50 and $100” and mail it personally along with all the relevant attached paperwork?

#9

Because you already did all that, on the check. Fraud isn’t costing the banks enough money for them to consider rolling out something like this. It’s not as simple as just flipping a switch. It would cost them millions in programming, training, hiring people just to handle this part of the check clearing process. It’s just not worth it to them. You could have thousands of dollars stolen out of your account due to forged checks and they won’t even look into it (provided they don’t have any reason to suspect it was you that did it). They’ll just refund the money and eat the loss.
Also, the system, as you describe it, wouldn’t work. Don’t get me wrong, I’m assuming you haven’t really thought this out yet. But what happens when you write out a check to someone and forget to call it in to the bank? It bounces, and your friend gets nailed with a bounced check fee.

I understand where you’re going with this, but I think BillPay is the way to go for what you are trying to accomplish. It’s one of those cases, where, in theory, what you mentioned makes logical sense, but technology advanced fast enough that the step was bypassed. Setting up a system like that would be going backwards.
If you don’t want to use BillPay because you want to be able to mail the check, you’re next option would be to use mail cash (gasp, the horror) or certified/cashiers checks. Of course that means driving to the bank or post office.

#10

yeah, so doing a software development project worth a few millions and requiring no training of any kind (they already have automated check clearing system, it would just use some new parameters here) is too tough for us nowadays. The executives are probably too busy converting to voice recognition phone menus that don’t work instead of normal input that does and implementing vitally vibrant diversity initiatives.

If you want to avoid accidental bounces, you can add business logic that would detect and handle such. Let’s say you could permit automatic authorization on checks below $100 for up to 2 checks per month or similar. Or, you can just introduce the rule of making me (the issuer) responsible for bounce fee specifically in the case of failure of authorization. Or you can think up and do a lot of other things, as long as you manage to, first and foremost, stop believing that the status quo is sacred and no further changes and improvements are desirable or even possible.

#11

First of all, they likely wouldn’t do that. This would be a cash cow for them. We’re talking about an industry that will clear checks from largest to smallest to maximize bounced check fees. For example, if 5 checks are set to draw from my account today for $10 $15 $12 $17 and $60 and I have $65 in my account, the bank could clear them from smallest to largest. The first four would go through and the last would bounce. But what they do is cash the from largest to smallest. So the $60 check goes through and the other four bounce. That’s four bounced check fees for me as well as four bounced check fees for whoever I wrote those checks out to.

It simply doesn’t work that way. If you write a check to me, I put it in my bank and it bounces, my bank is going to charge me a fee. They don’t care WHY it bounced, in fact, they likely won’t even know the reason beyond ‘refer to maker’. Who is going to repay my bank the $25 bounced check fee? You’re bank isn’t going to pay it just because you made a mistake, my bank isn’t going to eat it because of something that someone else’s customer did. I’m the one that’s going to have to pay it and I’m going to have to try and collect it from you.

ETA I somehow combined that in my head with the last quote and thought you said that the charge would be waived. In this case, it would mean extra parameters would have to be passed back and forth between banks as well as more money. Which, again, means more programming. I have no idea if that’s something easy or not. I would assume it’s quite a bit of work since it would need to be standardized to work between thousands of banks all over the country, all with different interfaces. So if the check you wrote to me bounces because you didn’t authorize it, your bank would have to tell my bank that it’ll cover the bounced check charge. Okay, so I’m in the clear. So now your bank has to A)collect the original amount of the check from you B)Collect it’s own bounced check fee and C)Collect a second bounced check fee for another bank. On top of that, it’s going to collect that one last. If you never fund your bank account with enough money to pay off that last part of the debt…well, I’m over thinking this now, but can you see where this is going to get messy? Again, we’ve got BillPay which makes exactly what you want to do happen very elegantly.

Who thinks the status quo is sacred and changes or improvements aren’t desirable or possible? Check21 represented a HUGE improvement in the way checks are cleared, BillPay was a small revolution in how people pay bills as well as each other. Just recently several banks started allowing people to take a picture of a check with their cell phone and deposit into their checking account that way. The banking industry is hardly stagnant. But with BillPay doing basically exactly what you want will less work, it seems like a step backwards.

#12

Not to tough. Not worth the expense. Banks haven’t seen enough value in a system like this, to make it worth the cash outlay to make it happen.

Why don’t I have have bulletproof glass in all the windows in my house? Because I have decided that the risks don’t justify the cost. Same thing with the banks.

#13

I could imagine a mixed system, where you use your bank’s online system to generate (print out) a paper cheque for a fixed amount, which you could then fill in (name, address, etc.) and snail-mail to someone. The cheque wouldn’t have the usual safety features, but it could bear a unique 637-digit authorisation number matching the transaction you did online to authorise it. This way normal chequebooks would no longer be needed.

Or we could keep using chequebooks but, instead of that ridiculous signature that the banks don’t even verify, they could require that we write out a 58-digit autorisation number matching something we obtained online. No number, no value. It would make a stolen chequebook pretty much useless.

I guess if cheques were being invented today, they’d look something like that. But they were invented a long time ago, and an entire ecosystem has grown up around them. It’s not unusual, for instance, for an individual to write a cheque with the intention that it not be cashed unless something happens, or for person A to sign a blank cheque for trusted person B to fill in with the needed amount at a later time, or for person C to write a cheque and hope that the bank won’t process it until payday, etc.

I guess eventually, as fraud mounts, the banks will just raise their fees for cheque processing to discourage individuals from using them altogether.

I write maybe 6 cheques a year, for condo fees; the rest is all electronic. Oh, and a specimen for the gym. And I’m old-fashioned, the kind who requires paper statements. We even loaned money to a friend and he’s repaying us electronically.

#14

OP: Ultimately, checks are a 19th century payment system that has staggered into the 21st century on it’s last legs. Most of the civilized world hardly uses them at all for consumer purposes.

Conversely, the US has this large antiquated installed base. But banks are doing everything in their power to push people towards more modern systems which have different inbuilt security features more in tune with 21st century fraud methods.

There is little incentive for the industry to spend the money to solve the problem you’re looking to solve.

#15

that’s fine. So let’s say the banks want us to do A, but then maybe there are lots of people who want to do B, regardless of what the establishment wishes them to do.

So suppose we wanted to implement a variant of the system that has been proposed by Heracles upthread:

Instead of using magic numbers that the recipient bank will not give us, we could just use the amount on the check and the check number (if it is transmitted to the issuing bank) for verification. So I write a check #12 from SafeCheck Bank for $100. The check arrives at Chase clearing house and they use the clearing system to figure out if the check will clear with SafeCheck. SafeCheck bank can then see if the amount matches any authorized check that I printed using their online system (or preauthorized using phone system). If check number is transmitted (as most likely it is) they will also check that the number is correct.

So this way the implementation would be localized to SafeCheck bank (or financial company, if a check could be issued by a non-bank entity) whereas banks that process and clear SafeCheck Bank’s checks will not even see any difference. As far as they are concerned, they just use the standard clearing system into which SafeCheck Bank feeds whatever data they want.

#16

If you do the online version you’ve just introduced the internet in an attempt to reduce fraud. Which means you’ve just made the problem worse.

If you do the phone auth system then you’ve just substantially increased the number of transactions that will get returned due to people forgetting to auth, which would be a problem for the people expecting the funds for the things that were purchased.

#17

A secure Web site with password-protected access is more vulnerable than a scribble on a piece of paper? To the point where, if you use both together, it’s less secure than each individually? These are strange times indeed.

#18

Is still not very secure.

By putting the information online you’ve just increased the visibility of that information to anyone that can compromise your computer (which, as most people should be aware by now, is relatively easy to do for those that are motivated). The paper only version at least limits visibility to the person you give the check and the back office check processing people.

#19

So you’re advocating security by obscurity?

#20

Not exactly.

I’m advocating not adding in a completely insecure system into the mix that also enables fraud through remote compromise and execution.