Overview of a Demand Draft

The demand draft is a type of check that is created with the authorization of the user. This type of check is also referred to as an electronic check or an e-check. These checks are commonly used in a number of different industries in order to make purchases. Here are a few things to consider about the demand draft and how it works.

Origination

The original purpose of the demand draft was to allow telemarketers to sell products to customers over the phone. If a customer wanted to purchase a product from a legitimate telemarketer but did not have a credit card to use for the purchase, they could use a check instead. The person could relay the information from a check to the telemarketer over the phone. The telemarketer could then process the check and the money from the customer's account would be deposited directly into the account of the telemarketing company. This provided an easy way for the telemarketers to close sales where they previously Today, many companies offer this type of draft. For example, credit card companies and lenders will utilize this type of draft in order to collect payments from their customers.

Copy 

The company is submitting a copy of the check to the bank. The account holder has to provide the routing number and the account number that is on the bottom of the check. In order to process the check, a signature is not required. This is unlike a traditional check in which the individual would have to sign the check before it could be deposited. Instead of putting a signature on the check, the merchant will often put a statement that says something about the transaction is authorized and the bank will then deposit it. According to the Uniform Commercial Code, the bank has the right to hold off on depositing the check if it appears to be suspicious. 

Fraud

Because of the lack of signature requirements, this type of check has led to problems with fraud in the past. Many scam artists have successfully acquired the routing numbers and account numbers for an account and then processed fraudulent payments in this manner. For example, a fake company could be set up and then it could process several small checks from different accounts. The money would then be transferred into the account of the fraudulent company and most people would not recognize that the money was gone until they look at their bank statements later. By that point, the fraudulent company could have closed the company .

Dealing With Fraud

If you ever have to deal with fraud from a demand draft, the process can be taxing. Typically, the money will not be put back into your account until the situation is resolved. If this takes some time, you could be out quite a bit of money until it is taken care of. 


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