'Check 21' law goes into effect; tips offered to avoid bouncing

Daily Journal of Commerce (Portland, OR), Oct 28, 2004 by The Daily Journal

A new banking law, known as Check 21, goes into effect today speeding up check processing and putting consumers at risk for more bounced checks and fees.

The Consumers Union is warning consumers to keep a careful eye on their bank statements in the coming months and has issued a set of tips to avoid the law's negative impacts.

Consumers will now receive bank account statements with fewer - or perhaps none - of their canceled paper checks, as banks begin to process checks electronically. Consumers will enjoy less float, meaning that the checks they write will clear much faster. Under the new law, checks could clear as early as the same day, but banks won't be under any obligation to make funds from checks that consumers deposit into their accounts available any sooner. That could mean more bounced checks and more overdraft fees paid by consumers.

Banks maintain that the law will be implemented gradually, but consumers will begin to experience its effects in the coming months as more and more banks and merchants take advantage of electronic processing and other provisions of the law.

Consumers Union is advising consumers to review their bank statements carefully to get a better sense of how Check 21 is affecting them and offers the following tips to avoid its potential pitfalls:

* Expect the checks you write to clear faster, but not your deposited checks: Don't write a check unless the funds are already in your account. The checks you write will clear faster, but banks aren't required to speed up the time when they make funds available from checks that you deposit. Most banks will credit checks you deposit into your account in one day if the check is local. Deposits that are made through ATMs can take an extra day to be credited to your account. And out-of-town checks you deposit can take additional days to be credited to your account.

* Ask for a re-credit in writing if your bank makes a check processing error: If a check you write is paid twice, or paid for the wrong amount, or something else goes wrong with your checking account, you may have the right to re-credit under Check 21. This re- credit right means that you are entitled to have the funds returned to your account within 10 business days unless the bank proves that there was no error. If something goes wrong with your checking account, make a written request that your bank re-credit the funds to your account.

* Ask for a substitute check if there is a problem with your account involving a check: Check 21 restricts re-credit to consumers who were provided with a substitute check. If there is a problem with your account involving a check, always ask for a substitute check, which is a special kind of copy of your paper check. If you now get your original checks back, you could ask for an account that returns substitute checks every month.

Consumers Union and the Consumer Federation of America have urged banks to adopt a set of policies to help make the new law more consumer-friendly. Consumers can sign an online petition in support of the reforms at: http://cu.convio.net/check_21. So far, over 16,000 consumers across the country have done so.