Stop Trying to Float Checks and Save On Banking Overdraft Charges
If you habitually float checks (meaning that you send out a check before you have funds in your account to cover them), believing that you will make that needed deposit before the check clears, you probably find yourself bouncing checks all over the place and perhaps you're wondering why. The days of floating checks have been over since 2004.
In October 2004, the Check 21 Act became official. This act allows banks to throw away all paper checks and substitute them with electronic checks, allowing them to immediately debit checking accounts for the amount of the checks. The debiting of your account can occur within minutes of anyone receiving your check. Therefore, you can no longer put a check in the mail on Wednesday thinking it won't clear until the end of the next week, long after you've deposited your paycheck on that Friday. Now, if you mail a check on Wednesday, the telephone company might receive it the next day and immediately cash it in.
And don't think presenting a check to a merchant in person, say at the supermarket, is going to help you. A merchant has the right when you present your check to them in person to immediately convert your paper check to an electronic payment on the spot. In this situation, the merchant will give you your paper check back along with a receipt for your purchase.
If a bank of merchant substitutes your paper check for an electronic one, you will not receive a copy of your paper check along with your monthly bank statement. Instead, you will receive a copy of a substitute check which is nothing more than a slightly reduced image of the front and back of your paper check. The front of the substitute check will read: "This is a legal copy of your check. You can use it the same way you would use the original check." In other words, you use the substitute check as proof of payment.
If you're naturally cynical, you're probably wondering what happens if the bank or a creditor screws up and debits your checking account twice for the same amount, or once for the wrong amount, and their mistake causes other checks to be bounced. Several consumer groups are concerned that checks, either by mistake or fraudulently, could be cashed two or even three times.
The Check 21 Act includes a provision that addresses this potential problem. It allows one to request a refund for actual monetary losses, such as bounced check fees that you incur, for example, after your mortgage company debited your account twice, which resulted in your bouncing other checks all over town. Keep all copies of substitute bank statements and copies of checks and notify you bank immediately upon learning of any errors or omissions, as federal law gives you only 60 days to notify the bank that your account contains an error. If you're alarmed that someone might try to cash your check more than once, use credit cards or cash as much as possible.
Why was this act passed? The banks argue that it will significantly reduce the amount of bank fraud that occurs, as identity theft victims will now become aware that someone has accessed their bank accounts much sooner. They claim it will save both the public and them millions in reduced costs and fraud losses. However, the banking industry is going to benefit enormously in the short term in the form of increased overdraft charge fees since by those who are unaware of the new law and habitually float checks to pay their bills on time. This Act also dramatically reduces costs banks must incur processing checks.
What can you do if you need to float checks in order to pay your bills on time? Contact your creditors and explain the problem and ask for an alternate due date. Many utilities, credit card companies and banks will change your due date so that you won't have to float checks anymore. Many of them allow you to do this online.
Stop giving banks your hard earned money. Keep your checkbook balanced and know how much you have in your checking account at all times. And don't float checks.
