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Your checking account has undergone some radical changes -- changes that could cost you money in bounced-check fees and limit your ability to fight fraud or errors.
These alterations are so significant, in fact, that it may be time to abandon paper checks, if you haven’t already.
Yet few banks have done much to let their customers know what’s coming. And loopholes in the law mean many customers may never receive formal notification of the revolution.
It’s all part of a sweeping modernization law known as Check 21 (See the nonprofit Consumersunion.org’s Questions and Answers About the Check Clearing for the 21st Century Act), passed in 2004 by Congress and signed into law by President Bush. In a nutshell, the law freed banks from having to handle paper and instead allows them to process electronic images of your original checks.
The new law:
- Virtually ends "float." Checks are processed in a matter of hours, not days. (Technically, checks could zip through the system in seconds, but the huge volume will slow things down a bit.) The average time between writing a check and it being paid -- a period known as a check’s “float” -- is expected to drop from the two to four days typical now to less than a day. If you’ve gotten into the bad habit of writing checks before a deposit hits your account, you’ll need to knock that off or you’ll wind up incurring a fortune in bounced check fees.
- Makes it tougher to "stop" checks. With such fast processing times, it is harder to prevent a check you’ve written from being paid. If a door-to-door salesperson pressures you into buying magazines, for example, and you later change your mind, you may have just a few hours to enter a stop-payment notice with your bank to keep the check from clearing.
- Ends your right to get back your canceled checks. Any bank along the processing chain can decide to turn your paper check into an electronic image -- and then discard the original. Canceled checks that are "imaged" this way won’t be returned with your statement and you won’t be able to get them from your bank.
What you may get back with your statement are “substitute checks” -- paper copies of the electronic images made of your originals, said John Hall, spokesman for the American Bankers Association. Banks that aren’t ready to process electronic images will be presented with these substitutes, which can be returned to the customer.
- Gives you limited "re-credit" rights. With most other electronic transactions, you get a right of "re-credit" -- if you spot an error or fraud, the bank must put the money back into your account within 10 business days. (The bank can take the money back out again if its investigation determines you were wrong.) For the first time, this right will be extended to checks -- but only if a substitute check has been provided to you, said Consumers Union attorney Gail Hillebrand. If you get back your original, or you don’t get anything back from the bank, Hillebrand said, the re-credit right doesn’t apply to that transaction.
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