New Check Clearing Regs Kick In

(AP)  New federal regulations designed to speed up the processing of checks went into effect on Thursday, and consumer advocates advised Americans to be more vigilant about monitoring their accounts.

The Check Clearing for the 21st Century Act — better known as Check 21 — will allow financial institutions to exchange electronic images of consumers' checks rather than transporting the actual paper checks around by air, land and sea.

As a result, checks that consumers write are likely to clear faster than before, so there will be less "float" between the time a check is written and when funds are debited from the account.

And consumers who still get their checks back with their statements — about 36 percent of bank customers — are likely to begin seeing images of some checks among the paper ones.

The changes won't happen overnight.

Forrester Research of Cambridge, Mass., estimates that it will take until the end of the decade for banks and credit unions to digitally process checks from start to finish. It said that some major banks won't have fully implemented image exchange processes until about 2008.

Still, consumer advocates warn that if check writers aren't careful, they could easily overdraw their accounts and end up paying late fees and other penalties.

Joe Gillen, chief executive of Pinnacle Financial Strategies, a consulting firm in Houston, estimates that "consumers could be bouncing almost 7 million more checks and paying an additional $170 million in fees each month."

The U.S. Public Interest Research Group and its state PIRG affiliates recommend that consumers:

• Only write a check if they know the funds are in the bank.
  
  
• Understand that they need to seek a "substitute check," which is an electronic copy of their paper check, if they get involved in a payment dispute.
  
  
• Carefully monitor their bank statements in case the new electronic system results in a check being double-debited or the amount of the check being misread.

If a mistake is made, Check 21 requires financial institutions to credit an account within 10 days.

Americans currently write some 40 billion checks a year, but the number has been falling steadily as consumers make more use of debit and credit cards as well as online banking.