Don't fret if your check triggers electronic debit

Dollars & Sense

November 16, 2003|By Liz Pulliam Weston | Liz Pulliam Weston,SPECIAL TO THE L.A. TIMES

I recently paid off the balance on a department store charge card, using a check I sent through the mail. When I got my monthly checking account statement from the bank, it listed an electronic debit for the payment amount instead of showing the check clearing.

I called the bank and was informed that it honors any debit - it assumed that the merchant had my permission for the transaction. I called the store and was told that the faint print on the back of the monthly bills informed me of the new practice sometime over the summer.

The store uses the information from the check to put through an electronic transaction and then destroys the check.

I don't believe I was properly notified, and of course I will never use the store account again.

But to whom can I complain about unauthorized debits from my checking account?

If there actually had been an unauthorized debit, you could complain to the bank. Your financial institution is required by the Federal Reserve Board's Regulation E to investigate any so-called direct payment that you believe to be in error. If the bank doesn't respond, you could contact its regulators.

But it appears that you authorized this payment by writing the check. The merchant didn't take more money from your account than you approved. You're just in a snit that the store didn't waste time and money processing the actual piece of paper.

The practice you're describing is increasingly common among merchants and others who are looking for ways to reduce their transaction costs. Paper is much more expensive to process than electronic transactions, and electronic transactions leave a much better "trail" that's easier to trace if something goes awry.

That's why online bill paying is becoming more popular among consumers: These electronic payments are typically easier, faster, cheaper and more reliable than the U.S. mail.

Even the Internal Revenue Service, not always known for being on the cutting edge of computerization, has moved away from requiring taxpayers to keep mounds of paper when electronic records can suffice.

So, even in the unlikely event that your transaction had tax implications, the electronic transaction would be sufficient proof of payment in an audit.

You, of course, are welcome to take your business anywhere you like. But don't be surprised if other stores eventually adopt this practice. Paper checks very well might be the buggy whips of the 21st century.

I have a 5-month-old granddaughter. Her mother (my daughter) is in the process of setting up a college fund for her. I was told that 529 college savings plans will be taxable if the money is withdrawn after 2011, so the plan won't benefit my granddaughter, who won't be attending college until after that.

Would you tell us which plan would be best for my granddaughter?

It's true that the law that makes 529 withdrawals tax-free is to expire after 2010. Because these plans have become so popular, though, many are betting that Congress will make the tax-free treatment permanent.

Even if lawmakers don't act, these state-run plans will remain a good deal for many families. That's because gains in the plans would be taxed at the child's tax rate. Because those gains would have 18 years to compound in your granddaughter's case, that could prove to be a considerable tax savings.

The other advantage of 529 plans is that your daughter would remain in control of the money.

If your granddaughter decided not to go to college, the money could be transferred to a sibling or another family member, or even be withdrawn (although your daughter would have to pay penalties and income tax, at her tax rate, on the withdrawal).

A 529 might not be the best choice if your daughter is in a low tax bracket, or generally for any parent trying to save for an older child.

Typically, the small tax benefits in these cases don't offset the disadvantages of the plans, such as their restrictions on how the money is used and the lack of direct control over how it is invested.

The Los Angeles Times is a Tribune Publishing newspaper.

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