[mbreese]

It also makes you wonder how they know what the third, fifth, or seventh characters of your password are...

I suppose they could create multiple hashes each time you change your password, but I'm not optimistic.

[arethuza]

My UK bank requires a password and a separate secret phrase that they do the letter selection from. You need to supply the password and 3 letters from your secret phrase.

As my phrase is quite long I pretty much always end up writing it down or using an editor.... :-)

[kennydude]

I have a lookup table in 1password as my brain can't work with indexing random strings with numbers in them easily

[LiquidFlux]

I suspect it may be more related to being keylogged or an equivalent, and not revealing your entire password in the process.

[kennydude]

It's more than likely plaintext or "encrypted" (and decrypted to check if it's correct)