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saint_monkeyhttp://www.federalreserve.gov/boarddocs/press/bcreg/2003/20031222/default.htm
i just learned about this today. apparantly, about half a year ago, congress passed, and the president signed, a law allowing banks to recognize "substitute checks," which are imaged versions of written checks, as being as valid and legal as the physical checks themselves. This act will begin to be enforced in late October of this year, and affects everyone who receives or writes checks.
so what is the big deal?
since these imaged checks are as legal as the real check you write, as long as the institution that creates the check includes proper MICR encoding (the electronic numbers at the bottom of your check,) and promises that the original of your check will be removed from the Fed system if they introduce an image, (so that the issuer's account isn't "Double dipped," by the same check.) then these "images" can be traded between banks electronically via facsimile or data transfer. this is bad news for you if you "kite" your checks.
(check kiting, is writing a check for which you do not have funds, hoping that it will take several days for the check to clear the Fed, (right now a check must travel physically to the nearest branch of the Federal Reserve, where it is handed off to a representative of the Federal Reserve local to you. From the Fed, it goes to your bank, and the bank clears the check against your account. For checks that travel across the country, this can take two to four days, as your check passes from Fed to Fed.) Check kiters plan on a direct depost or payroll check to post into their account, making the funds available to clear the "kited" check. While this is a very common practice for people pinching pennies, it is technically illegal. (Funds must be available at the time you write your check, or you are guilty of passing a bad check,) But if you have your timing worked out, then there is no way to enforce the law, since no-one knows that you did not have funds except you.)
This act, called the Check 21 Act, will largely eliminate the delay involved with the Fed handoff, since the actual checks will not need to be exchanged at the Reserve, images of your checks will be allowed as substitutes. The end result? Same day clearing of checks you write. The act says that it does not "mandate" the conversion of all checks to electronic facsimilies, but it allows banks to use this option. But with the prevalence of both imaging and data transmission networks, and the ease and potential savings for the Government, the Act does sort of turn check substitution into a given.
Personally, In the long term, I've no problems with this,(at least right now, while it doesn't affect me personally,) it will merely enforce Ira's First Rule of Banking, "don't let your mouth write checks your ass can't cash," which is a sound policy. It will also make people do what they are supposed to be doing anyhow, and it will help eliminate some forms of check fraud. (and more likely than not, create brand new ones that we can't even imagine!) But I can't help but think that in the short term this specifically hurts very poor people, who will ignore the mandatory warning about the change (which your bank should send you in the next month or so,) and will be hit with lots of Non Sufficient Funds fees when all of their checks clear sooner than expected.
i just learned about this today. apparantly, about half a year ago, congress passed, and the president signed, a law allowing banks to recognize "substitute checks," which are imaged versions of written checks, as being as valid and legal as the physical checks themselves. This act will begin to be enforced in late October of this year, and affects everyone who receives or writes checks.
so what is the big deal?
since these imaged checks are as legal as the real check you write, as long as the institution that creates the check includes proper MICR encoding (the electronic numbers at the bottom of your check,) and promises that the original of your check will be removed from the Fed system if they introduce an image, (so that the issuer's account isn't "Double dipped," by the same check.) then these "images" can be traded between banks electronically via facsimile or data transfer. this is bad news for you if you "kite" your checks.
(check kiting, is writing a check for which you do not have funds, hoping that it will take several days for the check to clear the Fed, (right now a check must travel physically to the nearest branch of the Federal Reserve, where it is handed off to a representative of the Federal Reserve local to you. From the Fed, it goes to your bank, and the bank clears the check against your account. For checks that travel across the country, this can take two to four days, as your check passes from Fed to Fed.) Check kiters plan on a direct depost or payroll check to post into their account, making the funds available to clear the "kited" check. While this is a very common practice for people pinching pennies, it is technically illegal. (Funds must be available at the time you write your check, or you are guilty of passing a bad check,) But if you have your timing worked out, then there is no way to enforce the law, since no-one knows that you did not have funds except you.)
This act, called the Check 21 Act, will largely eliminate the delay involved with the Fed handoff, since the actual checks will not need to be exchanged at the Reserve, images of your checks will be allowed as substitutes. The end result? Same day clearing of checks you write. The act says that it does not "mandate" the conversion of all checks to electronic facsimilies, but it allows banks to use this option. But with the prevalence of both imaging and data transmission networks, and the ease and potential savings for the Government, the Act does sort of turn check substitution into a given.
Personally, In the long term, I've no problems with this,(at least right now, while it doesn't affect me personally,) it will merely enforce Ira's First Rule of Banking, "don't let your mouth write checks your ass can't cash," which is a sound policy. It will also make people do what they are supposed to be doing anyhow, and it will help eliminate some forms of check fraud. (and more likely than not, create brand new ones that we can't even imagine!) But I can't help but think that in the short term this specifically hurts very poor people, who will ignore the mandatory warning about the change (which your bank should send you in the next month or so,) and will be hit with lots of Non Sufficient Funds fees when all of their checks clear sooner than expected.
