Check 21 – the float stops here

There are few things that annoy me more in the checkout line than someone paying for their shopping by check. Watching them juggling pen, check book and driving license it is clear that this is the slowest and most cumbersome way to pay for anything. So the obvious question is, why pay by check at all?

I suspect that the main reason for paying by check is to take advantage of the “float”; that three or four-day period that it takes a check to clear, either to maximize the interest earned or as a way to defer payment until after next payday.

Whatever the reason, this is not intended as a diatribe against people who use checks, but to let them know that the banks are on to you… the free ride you have enjoyed for so many years is about to come to an end.

I’m talking about new law on the books – the Check Clearing for the 21st Century Act, known as “Check 21”. This became law in October 2003 and goes into effect today (Oct 28th 2004).

How will Check 21 affect you?

  • Your bank no longer has to return your cancelled check – instead you may get “substitute checks” if the original check was digitized or destroyed. Instead of this, your bank may try to get you to accept “truncated” or electronic checks – just say no – your rights as a consumer will be drastically reduced in the event of check fraud, double-charging or any other problem.
  • Checks you write will clear a lot quicker – perhaps overnight. More bounced checks = more bounced-check fees, which equates to a “nice little earner” for the banking industry. It has been estimated that consumers will bounce seven million more checks and pay $170 million in overdraft fees per month.
  • Unfortunately this streamlining does not work the other way – the checks you deposit to your account will still take several days to clear. Somebody’s got some explaining to do.

The banks have been spinning this one like crazy trying to make it look like they are doing you a favor, but having done a little research I have come to the conclusion that Joe and Joan Public were not at the bargaining table when this law was being drawn up – the biggest beneficiaries of Check 21 will be the banking industry.

The banks and their lawyers will try to tell you that Check21 is a “Good Thing”, but the fact remains that the banks will be saving $2 billion a year in check processing fees as well as the extra charges and fees mentioned earlier – and the odds are that none of this money will end up in your pocket. They are already trying to make it sound like they are doing us a favor by not charging us. I wonder how long that is going to last?

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