What are Demand Drafts?
Demand Drafts, also called Remotely Created Checks, came out of the FDIC’s Check 21 legislation. Check 21 stands for Check Clearing for the 21st Century Act. This is a federal law that is designed to enable banks to handle more checks electronically, intended to make check processing faster and more efficient. Electronic Checks remove much of the costs of moving physical checks from bank to bank and reduce the time required to process.
A remotely created check is the technical and legal name for an electronic check, or eCheck as we like to call them. Remotely created checks use the account information and authorization from the account holder to create an electronic image of a check with the required MICR code. Since the customer authorizes the transaction online or over the phone, the check will not have the normal handwritten signature of traditional checks.
eChecks flow from the merchant’s bank to the customer’s bank for funding much like physical checks do, but the processing does not require a paper check in the 1st step to be received from the customer.