Anyone still using the old "lemme write a check on Wednesday, because when it clears on Friday, I'll have the money in my account" method will begin suffering as of right now, due to a new law being passed, and the press, being tight-lipped about it. A new law affecting "grace periods" between when you write a check and when it's processed is going to be catasrophic for people (like me) who don't have that extra $40 per bounced check to pay. Of course, I don't write checks (rarely), so this doesn't apply to those of us who do business on the 'net. However -- for those who own their own businesses, write hard-copy checks, and balance the old checkbook, you might want to read this, as it will certainly affect you.
Say Goodbye To That Floating Check
As old checking rules fall, so should bad checkbook habits
It may be a good thing that more kids are using debit cards these days, because most parents couldn't teach them about managing a checking account.
Checking rules change
The problem is not so much that most adults fail to balance their checkbook -- although they do. It's that the rules involving checks keep changing. The latest change went into effect last week, and it pretty much ends the concept of "float" that many consumers grew up with. Technically speaking, float is the dollar value of cash balances created by the time lag in processing unpaid checks. For most consumers who grew up before the technological advances of the last decade, float was the time between when you could write a check, and when the debt would hit your account.
Yes, consumers are supposed to have the funds in hand so that their checks clear, but people living paycheck to paycheck, or simply trying to match the in-flows and out-flows, could be in a situation where checks clear much faster than they expect.
The last big change in this direction came in 2004, with a rule known as "Check 21" for the Check Clearing Act for the 21st Century, and which was designed to make the check-payment system more efficient by making it easier for banks to process checks electronically. With more than 35 billion paper checks being written each year, Check 21 made it so that the physical checks did not have to be moved from one bank to the next.
For many banking customers, the real impact of Check 21 was felt in the statement, where they stopped getting canceled checks returned and instead received "substitute checks" that amount to a picture -- usually smaller than an actual check -- of the written document. The next step in the evolution towards a cashless society -- or at least one without checks -- came with the implementation of something called the "accounts receivable conversion." This system made it so that if you pay a bill by check, the recipient can convert it into an electronic payment; the check does not necessarily show up in the next monthly statement, replaced by an entry showing the amount and the debit.
All of which leads to the latest change, one virtually ignored by the media, that retailers were able to start implementing Friday.
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It's called "back office conversion," and it's similar to the accounts receivable method, except it now can apply to paying by check in person at a store. In the past, stores would accept checks, take them into the back office (hence the name) and make a daily trip to the bank (or use a courier service) to get them cleared. Now, the checks can be converted in the back office into electronic payments.
This means goodbye, 48- to 72-hour grace periods; your payment will reach the bank during the day or at day's end, and absolutely overnight.
Translation: Goodbye float. No more making a purchase on Saturday by check, and expecting that the check will not clear before Monday or Tuesday at the earliest.
As with the previous changes to checks used to pay bills, consumers will get a record of the check on their bank statement and they can get a copy of the check that will have legal standing if it needs to be used for tax or other purposes.
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The original check is likely to be destroyed after 30 or 60 days. (Many checks already are incinerated or shredded in this fashion, but there is no change in the rules that financial institutions must keep a clear representation of your check for seven years.)
Analysts believe consumers aren't hearing much about back-office conversion because it doesn't alter consumer behavior; it simply impacts their ever-shrinking ability to play the float. Moreover, retailers will decide just how widespread the change is; given the cost and time savings most retailers would expect from the change, many retailers, especially the big ones, will make the move.
The good news for consumers is that no one expects them to pay additional fees for writing checks, at least not yet. If anything, by reducing the cost and effort for a retailer it may encourage more of them to accept checks; all of the previous reduction in float times have been shown to reduce the number of checks written against insufficient funds, a very real benefit to both sides of any transaction.
Check-writing patterns have been changing in recent years, with consumers becoming much more accepting of debit and credit cards, online payment systems, electronic bank access and more. Analysts think that trend may be expedited by back-office conversion.
This might bring some consumers to the conclusion that a lot of people have already reached -- that their debit or credit card does the job just as well -- or better -- than their traditional check. Anyone who has used the float as a form of short-term financing should instead be looking for overdraft protection or should curtail spending and step away from the edge of a financial precipice to avoid the heavy fees banks now charge for rubber checks.
Floating has been in retreat, and this will push that process along a little further. It has always been risky, but now people should know that they just can't count on any real float time at all.
HEY THANKS FOR THE HEAD'S UP MFSOBCSAAAAAAAAAAAS.
Greaaaaaaaa t. Anyway, this is one of those "must shares" with anyone who reads this page, since I know many -- just like me -- are indeed financially suffering right now. We certainly don't want to add insult to injury. At least we've been given a "grace period", but no one is saying for how long. Bottom line -- just don't write checks and count on the automatic deposit or ANY deposit taking care of it a day or two later. Very unsafe now.
Weee. Lovely way to start Saturday!
This has been yet another loverly PSA #113.