[MrsJim]

If you're one of those people who is accustomed to writing postdated checks - say, you don't get paid until the next day or so, and you need groceries, so you go to Safeway and write a check knowing there won't be any money in your account until the next day - you need to know about a new regulation taking effect today!

Banks hold float's fate
Check 21 brings quick clearance to written drafts
By SHANNON BUGGS
Copyright 2004 Houston Chronicle

SAY so long to the float.

The Check Clearing for the 21st Century Act — known simply as Check 21 — goes into effect today and is expected to cut down the amount of time it takes for checks to clear the bank.

That's because financial institutions will no longer need the original paper check in hand to deposit or withdraw money from an account.

Instead, banks can use electronic images of checks to verify the amount and who to pay.


Q: What kind of checks are subject to the law?

A: All checks — cashier's, payroll, personal and business checks.


Q: Why did Congress pass this law?

A: When the terrorism attacks in 2001 shut down air travel for several days, billions of dollars of paper checks could not be transported back to their originating banks.

Without the checks, banks throughout the country could not complete financial transactions. If the Federal Reserve System had not stepped in and floated credit to the banks until they could reconcile their accounts, bank customers could have been without access to the money in their accounts for a week or more.

Basically, banks now can exchange photographs of checks through computers.


Q: How will faster check processing affect me?

A: Checks are demands for payment that are the equivalent of cash.

Because the law allows banks to use technology to process checks faster, it has the effect of shortening the float, the time between when a check is written and when the money is withdrawn from a bank account to cover it.

Therefore, checks you write will clear sooner. Instead of it taking about a day for "in town" checks to clear, count on it taking just a few hours. Out-of-town checks that used to take at least a couple of days to clear will be paid the next day.

So, if you don't have the money in your account to cover the check, don't write it.

Q: So, will deposits be credited sooner as well?

A: The law does not mandate that.

Existing check processing laws set a maximum limit of between two and 11 business days on how long banks can make depositors wait to access their money.

Most banks, however, process checks much faster because they want to provide good customer service and stay ahead of their competition. No financial services company wants to be known as the "slow check-processing bank."

However, after 30 months of being in effect, a nationwide study will be conducted to see if banks are using the technology to make funds available to their customers faster and if the allowable hold times should be shortened to benefit consumers.

Q: What can I do to limit the damage if I bounce a check?

A: Keep more money in your account. Keep more money in your account. Keep more money in your account.

Now that you know the first three rules, here are other things to do:

•If you don't already have a companion savings account, open one and divert a portion of your paycheck into it. Ask the bank to link the savings account to your checking account, so if you write a check for more than what's in your account, the bank can take money out of your savings to cover it.
The charge for this should be less than $10 since you are using your own money to cover your mistake.

•Research your bank's overdraft protection program, which is usually a line of credit that you tap when you spend more than you have. These tend to be bad deals for consumers. Banks charge services fees that are an average $30 for each bounced check and/or a high interest rate on the loan amount to bring your account back into balance.

Q: Can I get my original paper checks back?

A: You can ask, but you may not receive.

The law does not require banks to return canceled checks, nor does it ban them from doing so.

Your bank may agree to continue to send you all your cancelled checks, but it can't send you what it doesn't have.

If the bank where the check is deposited chooses to destroy the original after making an electronic copy of it, then your bank will not have a paper check to send back to you.

Also, if your bank starts converting to substitute checks, it may send you the substitute checks instead of the originals.

But if you want documentary evidence of your check transactions, don't sign up for "voluntary check truncation," bankspeak for permission to not send you canceled checks or substitutes.

Q: What in the new law ensures that banks will destroy the original checks?

A: Nothing. Check 21 does not require banks to shred or securely dispose of the checks or mandate a time frame in which the check has to be destroyed. If a bank wants to keep the originals, it may.

Q: What in the new law guarantees the survival of the electronic copies of checks?

A: Nothing, but the old state laws about checks still apply.

Under the Uniform Commercial Code, states allow checks to be destroyed at any time as long as a financial institution can provide a legal and legible copy of the check. Typically, banks comply with state laws by keeping a check or its copy for seven years.

Check 21 does make substitute checks — paper copies of the digital image of the front and bank of original checks with all the endorsements — legal replacement documents for original checks.

Q: Will I have to pay to get a substitute check?

A: Not if you limit your request to just two substitute checks or canceled checks per month. State law says you can have two per statement for free.

But if you pay to have your canceled checks returned, count on paying to get substitute checks.

At this point, some banks that are destroying original checks are offering access at no extra charge to downloads of substitute checks through their Internet banking centers.

Others that want to get their customers comfortable with the changes are offering free access to substitute checks, but don't count on the largesse lasting long.

Fee income is very important to banks, and charging for substitute check retrieval seems like a natural source of future revenue for financial institutions.

Q: Will everything change at once?

A: No. The nation's largest banks are taking a gradual approach to implementing the changes allowed by Check 21.

Eventually, banks will save enormous amounts of money by zipping photographs of checks between computers rather than paying trucking companies and couriers to transport them.

But first they will spend billions to purchase the technology needed to
do it.

Sources: American Bankers Association, Bank of America, Consumers Union, Federal Reserve Bank of Dallas, J.P. Morgan Chase Bank and the Texas Department of Banking.

Personally, I've written very few checks in the past five years - with debit cards, online billpay/Visa Debit billpay - it's a LOT easier and I don't even have to buy stamps or worry about the check getting lost in the mail.

But I do know there are a LOT of folks out there who are in the habit of floating checks - and those bounced-check charges can really pack a wallop. So...take care - and if you're in the habit of floating checks, think twice...

[MichelleRae]

Mrs Jim I don't float checks but this was a great article to post for those who do and who may have missed the flier that probably went out with their bank statement last month. Times they are a changin!!

[MrsJim]

Well ya know...I stopped getting paper statements a LOOONG time ago!

[MichelleRae]

Oh yeah it didn't occur to me that some people don't receive paper statements! We use online banking but our bank still sends out a statement I should call them and see if they can stop doing that, we have everything we need right online.