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Beginning in October,
new legislation becomes effective which eventually may put
an end to “floating” checks. At one time or another, almost
all of us have probably “floated” a check. Perhaps it was
close to the end of the month and you bought groceries on
Friday, knowing that the check you wrote couldn’t get back
to your bank before payday on Monday.
While more of us are using debit
cards to pay for purchases, many consumers still rely on paper
checks taking 2-3 days to clear their banks.
After October 28, you may find
this more difficult. That is when Check 21 becomes effective.
The primary purpose of Check 21 is to provide an alternative
to our nation’s reliance on processing paper checks. You will
still be able to write a check, but once it leaves your checkbook,
the banking system will handle it differently. Should our
nation experience another tragedy like 9/11, our dependence
on moving paper checks could result in serious consequences
for our national financial system. This situation was the
impetus for the adoption of Check 21.
Another reason for Check 21
is to stifle white-collar criminals who write checks on a
regular basis knowing that they have insufficient funds to
cover the transaction.
Currently, it takes 1-5 days
from the time you write a check to a retailer to the time
the check reaches your bank account for payment. With Check
21, you will write a check to the retailer and the check’s
image is then transmitted electronically through the system.
If your bank is set up to receive electronic images, the transaction
reaches your bank account for payment on the same day. If
your bank is not set up with electronic imaging, it could
take a day for the money to be deducted from your account.
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Rather than using paper checks, the new
law would permit financial institutions to use “substitute
checks”—a digital image of the original paper checks with
all of the information contained on the original check. The
“substitute check” would be required to contain the words,
“This is a legal copy of your check. You can use it the same
way you would use an original check.”
Although it will take several
years for most banks to move to paperless transactions, you
can eventually expect to see the end of “float” periods as
well as the end of returned paper checks in your bank statement.
Rather, you’ll receive replicas or images of the original
checks, or those payments may appear as electronic withdrawals
on your bank statement.
While electronic presentment
is not mandated for banks and other financial institutions,
it may prove beneficial not only to the bank, but to its customers.
Currently, it can take up to five days to access funds on
an out-of-state check. Under Check 21, bank customers will
be able to access these funds more quickly.
If you have any questions or concerns about Check 21, don’t
hesitate to contact your local community banker.
CONSUMER TIPS is provided as a public
service by the Missouri Independent Bankers Association
AND
Community Bank of the Ozarks
P.O. Box 43
Sunrise Beach, MO 65079
(573) 374-5245
1-800-927-4314
www.cbobanker.com
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