Checks That Clear Really Fast

In an Oval Office ceremony open only to photographers and a handful of invited guests, President Bush Tuesday signed into law that will affect everyone who writes checks, from consumers to businesses.

The bill allows banks to clear checks electronically, potentially slashing paperwork.

What does that mean to you, the ordinary consumer?

You'll still be able to write paper checks. But once you give them to whoever you paid, the checks will not be coming back to you.

The bill, called the Check Clearing in the 21st Century Act, means banks will be released from their obligation to return to their customers their original signed and cancelled checks.

Consumers Union, which had an expert testify before Congress as the measure was considered, points out that checks you write will clear a lot faster - increasing the risk that a check might bounce if the money isn't really in your account at the time you wrote the check.

The changes won't take effect for one year, but when they do, Consumers Union recommends not writing any checks unless the money is already in the bank.

The consumer advocacy organization adds that the new law does not require banks to speed up the amount of time they take to credit customers with the amounts of checks they deposit into their accounts.

After 30 months, a study will be done on whether banks have voluntarily shortened the amount of time in which their customers get access to funds from checks deposited into their accounts.

The new system will also be cheaper for banks, but the law does not require those savings to be passed on to consumers.

Rep. Spencer Bachus, the chairman of the House Financial Services subcommittee in which the bill originated, was among those present at the bill signing ceremony.

Bachus calls the new check clearing system a "model for the world" and argues that it will benefit consumers.

"Consumers, in particular, will benefit because the legislation will enable depository institutions to offer their customers a host of new products and services," says Bachus. "For example, customers in rural areas may be offered extended deposit hours because financial institutions will be able to transmit the images of the check through the check clearing process, rather than having to send couriers out to remote branches or ATM's to pick up the deposited checks."

As for the current system, the Alabama Republican says it is antiquated, burns fuel, wastes money, and clogs our airports and highways.

Pressure within the banking industry for a switch to the paperless system for clearing checks has been building for years but intensified considerably after the Sept. 11, 2001, attacks. When planes were grounded in those first few days, banks had to resort to ground transportation to move the checks from place to place, considerably slowing the process of converting them to cash deposits.

Tens of billions of checks are processed each year.

Under the legislation, banks will be able to approve digital images of checks rather than physically transport them between financial institutions.

The bill changes the current requirement that banks have specific agreements with other institutions to electronically process checks. Banks, customers and businesses that still want paper checks could request a substitute check, which has the same legal status as a regular one, to confirm the electronic transfer.

Consumers Union advises however that there may be some situations - for instance, involving bank errors - in which substitute checks may be different for consumers.

The ins and outs of the new law are explained on the Consumers Union Web site, at