Wednesday, September 08, 2004
An October surprise -- from the bank
Political Puzzle -- The Front Page: "I know you've done it -- we all have done it. Write a check that you didn't have the funds at the moment to cover, but were intending to deposit the next day. We were taking advantage of what is known as the bank 'float.'

Well, that is coming to a rapid end. On October 25th, the 'Check Clearing for the 21st Century Act' otherwise known as the 'Check 21' law comes into effect.

The current system relies on couriers to transport the actual paper check from bank to clearinghouse to bank before the funds are transfered. For a local check, this process could take up to three days, and up to ten days for an out of state check. People have been taking advantage of this 'float' system for a long time -- essentially giving themselves a 'loan' of money that they didn't actually have.

Under Check 21, this system will be replaced with electronic means. The bank, upon receiving the instrument for payment, will create a 'substitute' check that can be beamed to the payor bank for instant payment, thus erasing this 'float'. That check you write this afternoon will be almost immediately deducted from your account within hours instead of days.

This is liable to cause a lot of insuffient check problems for many consummers who have been giving themselves 'loans' on their money. It is also going to effect a lot of companies also, who take advantage of this float by collecting the interest on their payroll accounts for an extra few days.

My company pays me out of New York. They have a weekly payroll of roughly a million dollars. They purposely have resisted automatic payroll deposits because they know that it takes ten days for a check to clear their account even though the employee gets their money immediately. That is ten additional days that they can collect the interest on a million dollars.

Well, that is going away, and because this windfall 'profit' is going away as well, then it is likely that there will be some kind of belt tightening to compensate for it.

Oh well, I guess that is progress..."

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