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How_does_Check_21_affect_you
| How does Check 21 affect you?
Every year nearly 60,000 airplanes take off and land with an
estimated 36 billion paper checks at an annual processing cost
of $8 billion. Who pays this $8 billion dollars? The banks and
credit unions across the nation, that's who. Why do they go to
all this effort and expense? Many state commercial codes
stipulated that only a canceled check was proof positive of
payment. Since there are nearly 18,000 financial institutions in
the United States, most of them have not been able to charge
fees to cover this $8 billion cost of letting you have a
checking account. This means that all of that money has to come
out of other fees, penalties and loan rates. At least this was
the truth until October 21, 2004 when a new federal law took
effect trumping states rights to regulate banks within their
borders. The Check 21 Act allows a paper preprint of a check to
be considered the equivalent of the original check. In English
this means a bank in Oregon can copy a deposited check, send the
image to your bank via electronic means and receive their money
all in the same day. Image exchange checks will not replace the
old fashioned method of moving paper checks any time soon,
though the number of checks written a year is decreasing an
estimated 5%. Analysts expect the image exchange checks to
surpass paper processing in 2006. So why do banks want to invest
in the equipment and security measures necessary to move checks
electronically when the other method works? I can name you 5
reasons for every check every financial institution handles and
they are all named Lincoln. Every check a bank does not handle
is a savings of 5 cents, for an annual average savings, per
bank, per year, of $266,000. How will this affect you, the
consumer, who writes 120 checks a year for every man, woman, and
child in this country? It doesn't affect you very much, except
you will likely be receiving a printout of your checks with
every statement. The exception to this is if you are one of the
millions of consumers who will write a check on Thursday, the
day before your paycheck is deposited. You have become
accustomed to writing a check and having a couple days to get
the money into the account before the check reaches your bank.
You are using what is called the float principle. Simply put,
the float principle is the amount of time it takes a check to be
deposited, trucked and flown to your bank. With image exchange,
the float is sunk. Through 2006 the banks and credit unions can
collect an estimated $170 million per month in bounced check
fees on nearly 7 million checks written on accounts before the
money was in the account. That $170 million translates into 5
cents for every check written in the nation, or nearly $266,000
per bank, per year. This money will be taken from consumers in
the form of "service fees", turning that $35 check into a $70
check because of the $35 bounced check service fee. Who is more
likely to have insufficient funds in their checking account -
the above average income or the below average income consumers?
I guess it depends on your definition of below average income.
The ultra-below make less than $10,000 a year and mostly operate
without checking accounts. The ultra-above make more than
$250,000 and use electronic or plastic means of paying for their
purchases and everyday expenses. That leaves the rest of the
nation, approximately 200,000,000 of us to provide enough
service fees for the banks to average a quarter million dollars
in unearned income each year. We're the people writing 10 checks
every month for every member of our household. We're the busy
parents of active children trying to do everything and be
everything in what we call an American dream. How can you
protect yourself and keep from adding to your banks bottom line?
Control your checkbook and perhaps even change your spending
habits. As more and more banks switch to the Check 21 system,
you have to be ready for when it happens to you. You can do this
in a very simple, practical, and easy manner. Flip-flop the
order of writing checks. Let me demonstrate on Sue, a typical
mother of two children (12 & 14) who works at a local office
building. Every Friday her weekly paycheck is deposited in her
checking account electronically. How Sue will respond to Check
21 is that from now on she will no longer do the grocery
shopping on Thursday after soccer practice. Instead she will
wait until Saturday after gymnastics, or even Monday on her way
home from work to swing by the store and pickup a couple bags
groceries for the week. By making this switch in routine, she
will know the money for the groceries is in the bank. Now let's
make the assumption that instead of some imaginary woman named
Sue, this person was you. Did you see what happened? Instead of
writing a check before the money was in your account, you waited
to write the check after the money was in available. This
guaranteed your check would clear and you would not be charged
any unexpected service fees. By waiting to write checks until
after the funds are in the account will take a little practice
on your part and might be more difficult to do than it sounds.
If you make the effort, and train yourself to think like a
banker so you can avoid service fees, you will come out money
ahead. As the rules of banking change, you have to know and
understand your rights and what these rule changes mean to you.
Check 21 legislation was enacted to make check processing easier
and more convenient for financial institutions across the
country. They are also anticipating a surge in income through
service fees. Do your best to avoid padding their bottom line -
write checks only after the money is in your account.
Roger Sorensen is a Financial Literacy Speaker and Author - his
book "You Don't Own Money" is available online at
http://www.amazon.com/exec/obidos/ASIN/0595186815/brighterfutur-2
0.
About the author:
Roger Sorensen is a Financial Author and Speaker, and the editor
of Money Basics, a monthly personal finance newsletter found
online at www.brighterfutures.com. After filling in his own debt
pit equal to 150% of his annual income, Roger has turned the
experiance into Brighter Futures, a Financial Literacy company.
"There is hope for you, no matter how large your debt load might
be."
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