'Float' on checks to plunge Oct. 28
By Tony Pugh
Knight Ridder Newspapers
WASHINGTON — Time is running out for cash-strapped consumers who rely on the "float," the one- to five-day lag between the time they write their checks and when their banks withdraw the money from their accounts.
Here are some tips on dealing with check-writing changes under Check 21: • Because the law shortens the "float" between the time a check is written and when a bank withdraws money to cover your check, it will be much harder to stop checks once you've written them. • A shortened float means checks will bounce faster. Don't write checks unless the money is already in your account to cover them. • Ask your bank whether it will charge a fee for "substitute checks," the special paper copies of electronically processed checks that are the legal equivalent of the original check.
A new federal law, effective Oct. 28, enables banks to process checks electronically using digital images instead of the original paper check. That will cut the "float" time on out-of-town checks to 24 hours in many cases. Local checks typically clear in about 24 hours.
Remember key 'check 21' facts
The Check Clearing for the 21st Century Act, or Check 21 for short, is the most sweeping overhaul of the check-cashing system in more than 50 years. The banking industry expects to gain $2 billion a year in reduced check processing and transport costs.
Customers may not feel the effects of the new law immediately because many banks lack the software needed for electronic check processing, said John Hall, a spokesman for the American Bankers Association.
But as more banks upgrade their systems, customers who write checks before depositing the money to cover them could face more bounced-check fees.
"No one should write checks for amounts they don't have," Hall said. "That's just good personal finance discipline."
Many banks already are notifying customers about the new law, but consumer advocates say that may not be enough to stave off a rash of unexpected overdraft penalties.
"It depends on how well-educated consumers are about the change. ... There's a lot more that needs to be done," said Gail Hillebrand, a senior attorney at the San Francisco office of Consumers Union, a national watchdog group based in Yonkers, N.Y.
Check 21, which was strongly backed by the banking industry, also will reduce the number of returned canceled checks because the law allows banks to destroy the original check once a digital image has been made.
