Date: Feature Week of
THE BIG BOUNCE: How New Banking Law Changes Check Cashing
If you're in the habit of playing beat the clock with your checking account, it's time to change your ways. The financial process known as the "float” now is harder to pull off. Nowadays, if you tell the auto mechanic to “hold the check until Friday,” you’d better have the cold hard cash in the bank Friday morning.
People who “float” checks, be aware; bouncing a check is going to be easier to do and cost more money. The "float" is the one- to five-day window between the time you write a check and the time the money is withdrawn from your account. Floaters used this time lag to give themselves short-term, interest-free loans. Now, Floaters have to clean up their game, and in a hurry. A new federal law, which went into effect October 28th, now speeds up the processing of checks. Checks you write will clear the bank faster, but your money from deposits won’t have to be made available to you any sooner.
Banking industry experts estimate that the Floating Population will bounce seven million more checks and pay $170 million more in overdraft fees in coming months. Under the new law, checks can clear banks in hours; rather than days; but banks won’t be under any obligation to speed up the processing of checks consumers deposit into their accounts. The new law, called “Check 21” phases out your ability to get paper copies of cancelled checks back. Banks will save up to $2 billion a year not having to send back cancelled checks.
Check 21 will speed up the amount of time in which checks are processed, but won't reduce "holds" banks place on deposits. Banks are allowed to hold local checks for up to two days and out-of-town checks up to five business days. That could create problems for people who work for a company headquartered in another city: if you wrote a check that clears while there’s still a hold on your paycheck, it will bounce and trigger a hefty overdraft fee. Check 21’s aim is to let banks use electronic-check processing efficiencies to cut up to $2 billion a year from the cost they incur moving, cleaning and returning 40 billion paper checks. Unfortunately, the law does not require banks to pass any of those savings on to their consumers and they may also charge new fees for providing substitute checks.
Banking industry officials say the change will make the system less expensive, more efficient and less susceptible to fraud. The impetus for the change was the Sept. 11th terrorist attacks, which disrupted transportation for several days throughout the country. After the attacks, the Federal Reserve Board pushed for changes that would make the country's financial system less vulnerable.
With Check 21, bank customers will need to pay more attention to their checking accounts: Balance your checkbook. About 87 percent of bank customers don't reconcile their checking accounts. If you don't know how much money is in your account, you're likely to bounce a check. Don't rely on receipts from your ATM to keep track of your balance. The receipt may not show outstanding checks or debit card transactions.
Arrange for direct deposit of your paycheck. That way, your money will go directly into your bank account, bypassing the hold.
Be wary of offers for bounce protection. If you're worried about bouncing checks, your bank or credit union may encourage you to sign up for a bounce-protection plan. Some of the plans even cover excess withdrawals from ATMs or debit cards. But this kind of coverage can be expensive. Banks generally charge $20 to $35 per transaction. Some add a fee of $2 to $5 a day until you've replenished your account.
For African Americans wanting to keep more of their $600 billon-a-year bankroll in their traditional communities, the National Bankers Association (NBA) has 50 member banks. The group, foundered in 1927 to help economic development in black communities, operates in 29 states, two U.S. territories and 60 cities. The NBA reports that minority- and women-owned banks employ more than 15,000; have assets in excess of $31 billion and more than 3,000,000 depositors.
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