If your living on anything even closely resembling my law school budget, the new federal law, the Check Clearing for the 21st Century Act, affectionately known as “Check 21″ may be of interest to you. The law, which went into effect today, allows banks to use electronic copies of checks, which will drastically cut own on the time it takes checks to process. As the Jennifer Kingson of the New York Times explains:

“Technically, what Check 21 does is create a new negotiable instrument called a substitute check, which permits a bank to take an image of a check that is presented for deposit and process it electronically. There is no need to transport the check to the bank against which it was written; that bank can print a substitute itself and send it to its customer.”

I am totally for this law, which eliminates much of the inefficiencies in banks, but it will mean that folks living paycheck to paycheck will have to change their bill paying tactics. No more check floating - writing a check and sending it with the knowledge (or hope) that the funds will be in the account prior to the check being processed. Soon, the funds will be deducted from the account instantaneously, or at the very least, within hours.

This raises an issue - if banks can process even out-of-state checks within minutes, what are they going to do about the abominable hold times on deposits. Now under federal law, banks must make funds available on local checks in two days, and five days on out-of-town checks.

As a bank executive notes in the article:

“Consumers are now getting a sense that checks will clear faster… and on the deposit side they’re going to be asking, ‘Well, if you’re getting it faster, how come you’re not going to give it to me faster?’ and I think that’s something that banks are going to have to grapple with. This may cause banks to reconsider availability policies.”

This entry was posted on Thursday, October 28th, 2004 at 6:56 pm and is filed under Law, Movies. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.