|
Speeds Checking,
Sinks your Float |
| Checking for the 21th Century |
And what it means to you?
If you think you can get away with a little float, think again. You know what
the float is--you write a check today hoping it won't be deducted from your
account for a couple more days. That won't neccessarily work anymore. |
The Check Clearing for the 21th Century Act (Check 21)
will cut the time it takes a check to clear from days to
hours. So think about weather you need to change your
checking habits.
Starting Oct.28, 2004, the Check 21 law helps financial
institutions send checks electronically to each other, by
"truncating" the movement of paper checks by converting
them to electronic files. This is something that most credit
unions have been doing for years, but banks are only starting
to do.
Check 21 allows any financial institution that doesn't want
to receive a check in electronic form to request a paper copy
of the electronic check. This converted paper check is called
a "substitute check." A substitute check is more than a photocopy
or paper image of the original check--it's required to meet strict
standards to qualify as the legal equivalent of the original check. |
Check 21 reduces
check clearing
time from days
to hours. You
cannot rely on
float anymore.
How might all this work?
Jane writes a check for $770 to buy
a new sofa from Soft Sofa Settees Inc.
Soft Sofa deposits her check into its
account at Bank A. What happens
may become complicated, but you'll
never even know about it. Bank A
needs to get the money from Jane's
credit union account. Bank A has adopted a paperless payment process , so it converts Jane's check to an electronic file
and electronically sends it for collection to an intermediate Bank B. (Bank A could retain Jane's original check or destroy
it at some point.) Bank B electronically collects the funds from Jane's credit union. The credit union may, but doesn't have
to, ask Bank B to create a paper substitute check. If Jane has a share draft/checking account that calls for the credit union
to return paid checks in her monthly statement, she will receive a substitute check of her check to Soft Sofa.
Remember that Jane's check, which might have taken days to travel around in paper form before reaching the credit
union before Check 21, could arrive for payment in a matter of hours now. Jane won't know if her check will travel a paper or
electronic route so she better have $770 in her account when she buys that sofa. She can't "play the float" anymore.
What if Jane, after waiting months for her sofa, contacts Soft Sofa and the salesperson says he doesn't know anything
about her order? Jane, of course, says she's paid for the sofa, which Soft Sofa disputes. Jane can request from her credit
union a substitute check, which has an image of the front and back of the original check showing that Soft Sofa deposited
her check into its account at Bank A months ago, and includes a sentence that the substitute is the legal equivalent to the
original check she wrote to Soft Sofa. Jane can use this substitute check to prove to Soft Sofa that she has paid-- or to
take Soft Sofa to court, if it comes to that.
Say Jane's $770 check to Soft Sofa is converted to an electronic file along the way, and reconverted to a substitute
check for the credit union, but somehow the amount charged to Jane's checking account is $990. The Check 21 law
spells out Jane's rights to file a claim for an expedited refund for the $220, any dividends she may be owed on this
amount, and a refund of any fees she may have been charged because of this problem.
Bottom line: You probably won't see a substitute check often. But your check frequently may be converted into an
electronic file and speed through the payments process. So shape up your checking habits before Check 21 sinks your float.
The government requires anyone receiving a substitute check be given a consumer awareness disclosure notice, which can
be viewed by clicking here. The notice explains Jane's rights and the credit union's responsibilities for handling problems that
may arise specifically with substitute checks.
|
