Jewish World Review Nov. 18, 2004 / 3 Kislev, 5765

Jeff Gelles
Consumer Watch

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Consumer Reports

Check your balances: New rules reduce 'float'

By Jeff Gelles -- Remember the advice that the Borg, stone-faced villains from a nearby galaxy, were fond of giving the lesser creatures they encountered on the "Star Trek TV series?

"Resistance is futile," they said, as much in warning as recommendation. Those who submitted were "absorbed" by the Borg. Those who resisted were too, of course, but only after providing the sort of entertainment a mouse provides a cat.

Those of us who write checks would do well right now to recall the Borg's advice, even if we choose to ignore it.

Come this Thursday, all who use the nation's checking system will be thrust into the future whether we want to go there or not, as Check 21 - formally, the Check Clearing for the 21st Century Act - goes into effect.

After a year of buildup, the changes will be gradual enough to seem anticlimactic. But consumers will have to adjust to the new system's pitfalls - especially the loss of "float" and a likely increase in bounced checks.

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The short version of Check 21: To make the checking system more efficient, it makes it less dependent on paper. If that sounds a bit oxymoronic to you - what are checks if not paper? - you're starting to get the idea.

In the long run, bankers and regulators expect that the vast majority of payments will be made electronically, as many people already do when they pay by credit and debit cards or by deductions from their bank accounts.

As a bridge to the future, Check 21 allows any institution that handles a check to convert it into an electronic record and destroy the original. If another bank along the way demands the check in paper form, or if you want a canceled check, a printout called a "substitute check" will be presented.

If you still get your canceled checks back each month, you'll begin to see a mix of actual and substitute checks, which will be legally equivalent to the checks that were destroyed.

If you've already agreed to let your own bank destroy your canceled checks and send you "check images" instead, you'll see little or no change.

But both categories of consumers will face consequences as banks increasingly move checks electronically rather than in paper form. And the most notable of these will be faster payment of funds from the check-writer's account - or less "float."

"Float refers to the time it takes for a check you write to be debited from your account. Some takes place within the checking system. Some takes place before your check has been deposited - while it's in the mail, say, or in a merchant's safe.

That external float won't be affected by Check 21. The speed-up will happen once your check is deposited.

Say you tend to write checks at the grocery Wednesday evening that would bounce if your paycheck weren't deposited Thursday or Friday. If your employer is reliable, it's a reasonably safe bet to write the check Wednesday, even if you're winking at the legal notion that a check represents available funds.

Under Check 21, you'll still be able to bet on an overnight float, because it will still probably take a day for your grocery to deposit your check in its bank - the external float. But counting on float till Friday will become far riskier, because things will start to speed up when checks hit the system.

Most signs point to a transition that will take place over a period of years. But some change could come sooner.

Two large banks, Bank of America and KeyBank, have already begun pilot projects under which they will be converting checks and exchanging them electronically. In the coming months, many of the nation's largest banks are expected to follow suit.

How could that affect you? Say you're a customer at Fleet Bank, now part of Bank of America, and you send a birthday check to a sister in Colorado.

It will still probably take two or three days for her gift to arrive. But if she deposits the check in a KeyBank account there, and it's presented electronically to your bank, it could clear within 24 hours - as much as two or three days faster than now. Once Check 21 processing is widespread, most checks will clear overnight.

Organizations such as Consumers Union are concerned enough about Check 21 that they have been petitioning banks to make the new system more consumer-friendly. (To see the petition, go to One proposal calls for banks to go easy on their customers at the start, and not use the law as an opportunity to generate extra fees.

Consumer advocates say it's a reasonable request, given that banks will eventually save billions of dollars from electronic processing. So far, not a single bank has promised to comply. Most that I asked referred me to a reply from the American Bankers Association (, which says changes will be gradual and consumers will adapt.

But not all. Commerce Bank's Rick Burke says branch personnel are being told, "If somebody comes to you and says, `I don't usually do overdrafts,' do the right thing."

Reduced float isn't the only reason for consumer concern. Some experts worry that electronic processing will increase the risk of large-scale criminal fraud and identity theft, because so much personal data - including your signatures and buying habits - will be stored on computers and possibly hackable from faraway places.

For now, all we can do is hold onto our seats. The future has arrived.

Jeff Gelles writes the ConsumerWatch column for The Philadelphia Inquirer. Comment by clicking here.


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© 2004, Philadelphia Inquirer Distributed by Knight Ridder/Tribune Information Services