If you are in the habit of “floating” checks, get ready to experience a sinking feeling.
A new law designed to speed up the time it takes banks to process checks will take effect Oct. 28, making it harder for consumers to avoid bouncing them.
People who write a check from a depleted account a few days before payday — a custom known as floating a check — should break this habit, consumer advocates say, because the money probably will be withdrawn much sooner than usual.
In other words: Don’t write a check and submit it to your landlord on Wednesday if you know the money to cover your rent won’t show up in your account until Friday. Otherwise, you may end up paying a hefty bounced-check fee.
“A lot of people who have never bounced a check before now are going to bounce their first one after Oct. 28,” said Gail Hillebrand, a senior lawyer with the Consumers Union, a nonprofit advocacy group that has criticized the law.
By mid-2005, consumers could be bouncing almost 7 million more checks and paying an additional $170 million in fees each month, according to the Consumers Union.
More than 40 billion checks are processed each year, according to the American Bankers Association, an industry trade group.
Until now, checks had to be physically transported — whether it was across town or across the country — before they could be cleared by a bank.
The Check Clearing Act for the 21st Century, also known as Check 21, tries to make this process more efficient by allowing banks to replace original paper checks with “substitute” checks that are made from digital copies of the originals.
Because digital copies can be transported across computer lines, money can now come out of a consumer’s account hours after a check is deposited instead of days.
For example, when a consumer writes a check at the grocery store in the morning, he or she could see the money deducted from the account that afternoon.
Check 21, which President Bush signed in October 2003, was created to help banks avoid check-clearing delays caused by terrorism or bad weather.
The law will speed up the time it takes banks to process checks, but it does not require them to process deposits faster.
“It’s a bad thing for consumers because the requirements for handling checks and deposits doesn’t match up,” Ms. Hillebrand said.
Consumers who don’t float checks probably will not notice the change after Oct. 28 because most already have given their banks permission to hold onto their canceled checks, said John Hall, a spokesman for the American Bankers Association, which supports the law.
Thirty-six percent of consumers still receive canceled checks with their statements each month, Mr. Hall said. After Oct. 28, those consumers instead will get a paper reproduction of the digital check.
These substitute checks can be used for proof of payment and are the legal equivalent of the original check, Mr. Hall said.
“[Images of checks] have been accepted as proof of payment by the courts and the IRS for decades,” he said.
Check 21 gives consumers the new right to get a credit when the bank double-debits a check or pays the wrong amount, but consumers must request a copy of the substitute check first.
The bottom line, Ms. Hillebrand said, is that consumers must be more careful when writing checks.
“If the money isn’t there in your account, don’t write the check,” she said.