Check rules effective tomorrow

If you’ve ever written a check and mailed it, though at the time you didn’t have the money in your account to cover it, you’ve done a “float.”

Effective tomorrow, Thursday, Oct. 28, the float could be a thing of the past.

A new federal law, informally called “Check 21,” allows officials of all banks, upon receipt of a check, to make an electronic copy and, instead of mailing the physical check back to the issuing bank for verification, they’ll simply send an electronic version.

Basically, the new law allows officials at banks, instead of shipping paper checks, to transmit electronic images of checks to each other, making for faster clearance.

But floaters, have no fear. The system is not mandatory for banks, and could take many years to evolve and implement.

“It will evolve over time as banks become technologically able to transmit electronically,” said Rodney Shinkawa of the Hawaii Bankers Association.

Shinkawa said that it already only takes a day or two for local checks to clear locally, and so “floaters” here are already finding it more difficult to do so.

But if you mail a check to a place like, for example, New York City, transportation time can give floaters time. And bank leaders are not obligated to have the technology, nor to use it if they do.

Check 21 is not to be confused with immediate check verification, which some retailers already do. For example, Shinkawa said that one large Hawai‘i retailer runs checks through their debit-card system and can, within minutes, tell if a check is good.

This is not what Check 21 does, Shinkawa said. Instant verification is, basically, a debit system.

Unfortunately, Check 21 will probably not speed up checks you deposit into a Hawai‘i account.

Generally, bank officials will still be able to hold local checks for up to two days, out-of-town checks for up to five days, and other types of checks (e.g., checks over $5,000, checks drawn on new accounts, checks written against consistently overdrawn accounts) for up to 30 days.

There will be a study after 30 months to determine if banks are making funds available to consumers earlier than the allowable hold periods.

The good news is that the new practice should avoid any clearing delays caused by circumstances that make the physical transportation of checks difficult or impossible (e.g., severe weather, power failures, terrorism).

The bad news is that checks might clear sooner and could increase the risk that a check will bounce if funds are not in the account.

“This is just the way things are evolving,” Shinkawa said.

Datatronix Financial Services Inc. officials are developing the technology for several banks in Hawai‘i. Officials at several credit unions said they already use electronic means to clear checks fast.

There are some other concerns with Check 21. Here are the details: Check 21 creates a new kind of paper copy of an electronic image of a check. This special kind of copy is called a “substitute check.” Only a substitute check can be the legal equivalent of the original check, and only a substitute check triggers the consumer right to re-credit of disputed funds. A regular copy of a check does not carry these same protections.

When a so-called “substitute check” is provided to a consumer, Check 21 gives the consumer a right to have funds of up to $2,500 re-credited to the consumer’s account in 10 business days if the check is paid twice, paid for the wrong amount, or otherwise paid in error.

If you ask for a copy of a check, your banker may send you an ordinary copy instead of this special kind of copy which triggers legal rights and protections unless you ask for a “substitute” check.

Consumers who want to maximize their consumer rights should ask for return of “substitute checks” with their checking-account statements.

Experts recommend looking for another bank if a bank charges a high fee to get copies of all your checks as substitute checks.

Phil Hayworth, business editor, may be reached at 245-3681 (ext. 251) or mailto:phayworth@pulitzer.net.