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Check out the new Federal Bank Law

    Check 21 – The Check Clearing for the 21^st Century Act, has permitted your banking institution to make some significant changes in the way they process checks, and Electronic Check Conversion processes for consumers are on the rise.    

A new federal law became effective on October 21, 2004.  21^st century check processing for banks and other financial institutions has arrived.  Financial institutions now have the option of creating, processing and exchanging a legal copy of your original check, essentially a ‘substitute check’, which is an electronic duplication of the check’s front and back.

Previously, when a check was deposited, it had to be physically transported to the institution before payment was ‘cleared’.  With ‘Check 21’, this is no longer required, which reduces processing time – and time is money. 

I asked Bill Daniel, the president of Liberty National Bank, how this process can directly benefit banking customers.  He replied that the check copies require less storage space, are easier to organize, and also cut down on research time.

Be careful though!  Because of this quicker processing, shifting that time from what used to be days, to what is now only hours, ‘floating a check’, will be virtually eliminated.  As always, financial pros recommend that you be certain funds are available in your account prior to writing any check.

Additionally, your financial institution will likely be sending you copies of your cancelled checks, rather than the checks themselves.  While it is not a requirement that they change from the previous methods used, the local metropolitan Atlanta banks and credit unions I’ve polled by telephone indicated that sending the copies was their preference, and in fact, most have already begun using this process.

Now that you understand those changes, here’s another one you may not have encountered yet.  And more importantly, there’s some things you’ll need to know about this payment technology, called ‘electronic check conversion’ which has been around since 1998.

ECC, or electronic check clearing, permits businesses to utilize the information on your check, to speed up the transfer of funds, usually at the end of the business day when they batch process the day’s receipts.

Here’s how it works . . .

• The consumer presents a paper check at the point-of-purchase
• The check is "swiped" or scanned through a check reader, the magnetically encoded bank account information is captured along with the sale amount, and the check is converted to an electronic transaction – the check is not negotiated, it is only a source document for the consumer’s checking account
• the transaction is APPROVED or DECLINED, just like the process for a credit card transaction
• the consumer authorizes the transaction by signing a receipt
• sales paid for by ECC are then electronically forwarded for clearing and payment into the merchant’s account, and the customer’s ‘voided’ check is returned.

With ECC, when you pay by check, you must be given notice, required by federal law, that information from your check will be used to request a payment, an electronic transfer, from your account.  Notice may be provided in different ways.  For example, a merchant may post a sign indicating that they use ECC at the register, or they may even give you a written notice that you’ll be asked to sign.

Business owners using ECC report that it eliminates paper check handling costs, makes for faster check-out times, accelerates availability of funds, reduces bad debt risk and collection costs, helps increase sales, and encourages more frequent shopping.

If you’d like more information on either process, including your rights as a consumer, you can find it at these Federal Reserve Board websites.

Check 21: http://www.federalreserve.gov/paymentsystems/truncation/default.htm or

Electronic Check Conversion: http://www.federalreserve.gov/pubs/checkconv/default.htm

 

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