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Check floating under fire

By Mark Harrison
The Times-Journal

Published November 24, 2004

For those thinking it’s time to play yet another game of “beat that check,” they might want to think again – the rules of the game are changing, drastically.

That’s thanks to the “Check Clearing for the 21st Century Act” or “Check 21” for short, a federal law that went into effect on Oct. 28.

The law, according to information from the Federal Reserve, the agency that sponsored it, is designed to allow banks to handle more checks electronically, in order to “make check processing faster and more efficient.”

Essentially, the “Check 21” Act declares that a digital image of a check is now a legal document, meaning that banks do not have to physically transfer the original check in order to process the transaction.

What does all this mean for consumers in Fort Payne and DeKalb County?

Alex Keene, vice president and senior product manager for Compass Bank, spoke to the members of the Fort Payne Rotary Club on Tuesday about the new law.

Keene said, under the provisions of “Check 21,” checks are likely to clear much faster, in most cases almost immediately after receipt.

That’s because electronic checks clear instantaneously, unlike paper checks, which take collecting banks at least a day or two to process and present to the paying bank. Therefore, according to Keene, “floating a check” – a method many consumers have depended upon to meet payment-due dates before actually depositing their paychecks – will essentially soon become a thing of the past.

She said the average clearing time for a check has been about 1.2 days but, under “Check 21” that time is decreases as low as 0.2 to 0.4 days.

While checks are clearing faster, the same can’t be said for the posting of deposits. Keene said most banks will wait until 2005 – or later – to implement deposit deadline changes and availability schedules.

Some banks now require up to two days waiting time before deposits post into checking accounts, depending upon a number of factors.

“For people who get paid on Friday but go to the grocery store on Thursday and write a check expecting that money to be there the next day, there could be an insufficient funds fee,” Keene said.

She said, at least in the interim, “Check 21” could “absolutely” open the door to an increase in attempted bank fraud and said therefore banks “must be very careful.”

Keene said, currently Compass processes an average of only 45 substitute checks per day, but said she expects that number will grow – both for Compass and for other banks – as the provisions of “Check 21” become more common.

She said the bank industry is expected to reach “critical mass” in 2006, at which time more items will be processed as images rather than original checks.

Consumers groups, such as “Consumers Union,” fear that “Check 21” means consumers will be more likely to bounce checks and may find themselves paying higher bank fees, especially insufficient funds fees. Such groups have also stated concern that the complicated “Check 21” law gives consumers limited rights, which vary depending upon a variety of factors, including how merchants and banks decide to process checks.

Some at Tuesday’s Rotary Club meeting expressed concern about the new law, including Rotary member Sandra Hallmark. “It just seems to me this law could harm a lot of people,” she said.

Another asked, “How many millions of dollars did the banking industry pay lobbyists to get this bill passed?”

Keene said the Federal Reserve proposed “Check 21” legislation in response to problems encountered following the 9-11 terrorist attacks. During the time planes were grounded, it slowed the transportation of traditional checks, resulting in an economic slowdown, she said.

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