Like many people, you may have been resisting entering the age of online banking, perhaps not wanting to pay your bills electronically. But whether you like it or not, later this month financial institutions and many merchants will be taking a big step closer to a more paperless society. We have the "Check Clearing for the 21st Century Act" (referred to as "Check 21" by those in the know) to thank for this.
Check 21, going into effect on Oct. 28, addresses how banks across America process checks. (Did you know that Americans write some 40 billion checks per year?) Under the status quo, banks have to wait to receive the physical, paper checks that you write before processing your transaction. Now, they'll be able to process "substitute checks" instead. Substitute checks are reproductions made with the help of a scanner -- merchants will be able to deposit checks electronically by scanning them, thereby saving themselves the trouble of trotting them down to the local bank.
The act is supposed to make check processing cheaper, more efficient, and more accurate. WellsFargo (NYSE:WFC) executive Steve Ellis estimated that the new electronic processing will be around 75% cheaper than paper processing.
Here are some things to know about this new act:
- Since your check may now clear within minutes instead of days, you'd better have the needed funds in your account, or you risk bouncing a check. Therefore, it's going to be more critical to update your checkbook regularly and to know how much money you have in your account.
- If you need to stop payment on a check, you may not have much time to do so anymore.
- There's a good chance you won't be receiving your canceled checks back from your bank. Many banks have already stopped supplying them, instead furnishing scanned images of them. Your bank may begin sending you the substitute checks.
- You may have faster access to funds from deposited checks -- though this isn't a stipulation of the act.
- It will likely take effect gradually. Bank ofAmerica (NYSE:BAC), for example, plans to roll it all out slowly.
One danger with the new rules is that those people who used to "float" checks, writing them a few days before deposited funds clear, may now turn to paying for more things with credit cards. If they're not able to pay off those credit card bills on time, they're setting themselves up for massive financial trouble.
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Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article.
