| Show I Floating Checks No Longer Fly Los Angeles Times When Congress changed the way banks processed paper checks it was a long long- overdue reform Unfortunately though the new law was tailored to benefit benefit benefit ben ben- banks at the expense of their customers The need for electronic processing check-processing systems was apparent in the wake of the Sept 11 2001 1 terrorist attacks which grounded cargo planes that each night ferry paper checks across the country The Check Clearing for the 21 st Century Act which went into effect last month allows financial institutions institutions institutions to create electronic images of checks that can be zapped from institution to institution Banks will be spared the high cost of ferrying ferrying ferrying ferry ferry- ing paper checks and the new system will insulate the nations nation's financial system from another catastrophic event Things arent aren't as rosy for consumers First they lose the float the time between when a check is written and when the money is actually transferred Its It's a common practice to write a check higher than ones one's bank balance balance bal bal- ance then deposit money later hoping to cover the check But even consumer advocates acknowledge that's a risky strategy because float times vary from two to 11 days Of more concern is that Congress didn't order banks to cut the amount of time they can hold onto checks deposited deposit deposit- ed by their customers That means banks will keep playing playing playing play play- ing the profitable float game by investing those funds Consumers Union and other public interest groups fear that the faster clearing times will spark a dramatic increase in overdraft charges until consumers grow accustomed accustomed accustomed tomed to the new system Its It's I also unclear who is going to foot the bill for inevitable glitches say checks that are paid twice or for the wrong amount when the electronic electron electron- ic system malfunctions And because paper checks will cease to exist once they're converted into digital form consumer groups worry that banks will charge fees for substitute checks that willbe will willbe willbe be needed to prove that a bill has been paid Banks would be wise to establish a grace period during during during dur dur- ing which overdraft penalties would be eliminated giving customers time to adapt to the new system They also could ease security concerns by giving check writers the same higher level of protection protection protection tion enjoyed by those who use debit cards Finally banks should voluntarily stop placing lacing holds on deposits for customers with solid credit records If they dont don't the Federal Reserve should use its powers to level the playing field by eliminating the float for banks |
