Consumers Lose the Float

New Banking Law Means Checks Will Clear in Hours, Not Days

November 15, 2004
The so-called Check 21 Act, which speeds up the check-clearing process, quietly took effect a few weeks ago and, while most consumers have not yet noticed an effect, they're likely to do so soon and most will be anything be happy.

"The Check Clearing for the 21st Century Act is better termed the Bank Bail-Out and Giveaway Act," wrote Steve of East Greenbush NY in a complaint to ConsumerAffairs.com. "Congress screwed us again. Check 21 was quietly passed in October 2003. Was this a massive concession to bankers in exchange for election year contributions?"

There's no question the financial services industry has given its fair share to political candidates, contributing some $785 million to politicians in the last four years, according to the Center for Responsive Politics.

The law permits banks to clear funds electronically instead of waiting for paper checks to make their way around the country. This means the check you write to your landlord today may very well clear today or tomorrow -- thus eliminating the three- to four-day "float" many consumers have come to count on.

It's expected to save banks $2 billion per year by reducing paperwork, not to mention an expected increase in overdraft fees and other charges likely to hit consumers who are living on the edge.

Of course, Congress "forgot" to require that any of that $2 billion gets passed on to consumers in the form of lower banking fees. Nor did it shorten the time banks are allowed to hold deposits before crediting your account -- which means, to put it bluntly, your bank keeps the float but you don't.

This seems unfair to Margaret of Temecula, CA, who complained to ConsumerAffairs.com that Washington Mutual Bank has started putting a hold on her pay check, which is deposted directly to her account.

"The deposit actually goes in on a Tuesday night at midnight and is dated for that Wednesday. In the past, I could go to the ATM and withdraw from those funds, or use my VISA Debit card as a credit card. However, as of late, those funds are now made as a MEMO deposit, according to the way the bank deposits them to my account, and funds are NOT AVAILABLE through the ATM or Visa. I physically need to go to the bank during banking hours to cash a check on that day," she said.

Consumers Union, the nonprofit publisher of Consumer Reports, estimates that Check 21 could cause about 7 million more bounced checks and $170 million a month in overdraft charges.

Not only that, but if you want an electronic facsimile of the check you wrote -- say, to clear up a dispute with an online merchant -- the bank is permitted to charge you a fee for coughing it up.

Consumers Union and the Consumer Federation of America are calling on banks to voluntarily adopt some safeguards that will make the process more consumer-friendly and have have launched an online petition to put pressure on banks. to adopt a set of consumer safeguards for the new law. Consumers can sign the petition at cu.convio.net/check_21.

"Banks shouldn't use this new law as an excuse to bounce more checks, charge more fees, or provide customers with unequal protection depending on how their checks have been processed," said Jean Ann Fox, director of consumer protection for Consumer Federation of America. "We urge banks to make Check 21 less disruptive and onerous for consumers."

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