Check 21: New bank procedure approaches, beware

| 10/13/2004

Due to the shallow-pocketed nature of the business, most truckers, especially owner-operators, rely on a “float” period – the time it takes before a check clears your bank.

But a new federal banking law helps participating banks make debits to your account faster than you can say “overdraft,” leaving zero time to beat the check to the bank with an offsetting deposit.

The new procedure is the result of the federal Check Clearing for the 21st Century Act, or Check 21. It passed a year ago and becomes effective Oct. 28, 2004. And what it does is make an electronic debit to your account. Until now, banks manually sorted and deposited many paper checks and transported them by truck, train or airplane to the various paying banks for processing, giving you a little “float” time.

But now, a bank receiving a paper check can create an electronic “substitute check,” which is sent electronically to the paying bank. When the e-check arrives, the paying bank will immediately send the funds and debit the check writer's account. Banks won’t be required to return the original paper checks, and they will likely be destroyed.

Advocates say the process is more reliable and secure. Financial sources say banks using the system can save billions. But the anticipated bounced checks could mean costly fees to drivers who use personal checks to pay for fuel, repairs, tow bills, taxes, fines and other expenses – not to mention the checks your spouse writes at home.

In fact, media reports say faster fund clearing will increase the number of “bounced checks,” with fees possibly rising by as much 20 percent.

Some advice
Industry watchers say check writers during the period from Oct. 28 through the end of December should consider:

  • Writing only what you can cover. Don’t write “payday checks” – checks written before payday deposits – as these checks will now be more likely to clear before the paycheck is deposited.
  • Checking your statement often. Bank mistakes could involve paying an incorrect amount or paying the same check twice. Ask your bank when it is converting and monitor your statements during this time.
  • Requesting new substitute checks. Such checks are the legal equivalent of an original canceled check. You have the right to have the bank credit funds of up to $2,500 to your account within 10 days for incorrect amounts paid. Meanwhile, substitute checks must contain an accurate representation of all information on the front and back of the original check and a legend stating: “This is a legal copy of your check. You can use it the same way you would use the original check.”
  • Using direct deposit. Although Check 21 will not speed up deposits – paychecks, pensions, Social Security and other forms of income should be set up for direct deposit into your banking account.
  • Getting an overdraft credit line. If you routinely run your checking account near zero, look into adding an overdraft credit line or linking your checking account to your other savings at the same bank. You will need to inquire about any additional fees this feature will involve.
  • Using credit cards for larger purchases. It is more difficult to stop payment on a check when you have a dispute with a vendor. Credit cards allow consumers to dispute incorrect charge amounts.

--by Dick Larsen, senior editor