Check Out New Law (Editorial)

We know most of our readers would never write checks without having the funds in the bank to cover them.

But the days when some would, on occasion, write a check, say on a Thursday, thinking there’s no way for the store to get that check to the bank before you’re paid on Friday, are nearing an end.

A new age in checking begins on Oct. 28, when the Check Clearing for the 21st Century Act goes into effect. It was passed by Congress last fall to address concerns that arose after Sept. 11, 2001, when the banking industry faced a crisis because flights were canceled, and banks depended on those flights to return checks to the banks on which they were drawn.

The act allows banks to clear checks through substitutes, such as a digital image. And no doubt it will be a big help for banks, retail shops and stores in many ways.

Eliminating the need to ship millions of pieces of paper, clearing checks electronically and calling up an image only if there is a dispute will save huge amounts of money and reduce fraud.

But Check 21, as the new law is called, also takes away consumers’ ability to get back their original paper checks, because their bank will no longer have them.

Because electronic processing will clear checks much quicker, customers are being warned that the old “float time” will decrease. Customers are advised not to write a check if the funds aren’t in the account when it’s written. It’ll be almost as fast as a debit card, some say.

Although banks will have to change some of their ways of operating and also buy equipment for this electronic, paperless processing, they will save money eventually.

And banks must make a decision on how much to invest in new check scanning equipment, because the number of people writing checks is finally beginning to decline, although not as fast as many thought it would.

Consumer Reports magazine said different kinds of copies of a check will have different rights attached. We think most of our readers will want to get the special kind of copy called a “substitute check” with their checking account statements. Only a substitute check can be the legal equivalent of the original check, and only a substitute check triggers a customer’s right to a recredit of disputed funds. A regular copy of a check doesn’t carry the same protections, the magazine said.

Since most bank customers already don’t get their canceled checks back, they’ll see little outward change. But as the banking industry moves to eventually eliminate both regular canceled checks and substitute checks, the old line about how the check’s in the mail will become history.