Prepare Yourself for a Check-free World

Ed Rabinowitz

Physician's Money Digest, February15 2005, Volume 12, Issue 3


Without warning:

At the end of October 2004, a lawknown as Check 21, which waspassed last year by the USCongress, took effect. According to, the law "frees banks from havingto handle paper and instead allowsthem to process electronic images ofyour original checks." And thanks to loopholes in the law,banks are not required to provide customerswith formal notice if and whenthese changes will take effect.

Banking Reality Check

Anyone who has balanced a checkbookis familiar with a check's float (ie,the average time between when youwrite a check and when it's actuallypaid). Check writers used to have 2 to 4days to float a check, which meant youcould write checks for bill payment andstill have time to put money in youraccount. The new law, however, changesthings. The average time for processing acheck will drop to less than 1 day.

The law will also make it more difficultto put a stop payment on a check you'vewritten. Your margin for stopping paymentmay be no more than a few hours.You will also lose the ability to get backyour canceled checks. Since the law allowsbanks to turn your paper check into anelectronic image and discard your paperoriginal along the way, what you willprobably get back with your checkingstatement are substitute checks.

According to the law, substitutechecks have all the legal standing of anoriginal check. However, there does notappear to be a limit on what banks willbe able to charge for sending you thesesubstitute checks. And because you willonly have an electronic picture of yourcheck, it may be more difficult to determineif a check was forged.

Payment Replacements

One exception:

Perhaps it's time to put away yourcheckbook and make the switch—butwhere to begin? Start by using a debitcard for in-person transactions. Debitcards are covered under Regulation E,meaning that if a mistake is made in thetransaction, the bank must resolve theproblem or put the disputed amountback in your account within 10 businessdays. when your debitcard is out of your sight, such as whenpaying for a meal.

Consider switching to automatic debitfor regularly scheduled bills. This serviceallows merchants and lenders to taketheir payments directly and automaticallyfrom your checking account.You're protected against any transactionerrors that may occur and youwon't have to worry about incurringlate fees if you miss a payment duedate. The exception here might be withyour phone bills, since it's not unusualto have disputed charges appear on aphone bill. Instead, put these types ofpayments on a credit card.

Lastly, consider making use of secureonline bill payment. It's convenient andpayments are protected under RegulationE. However, be sure to keep yourselfsafe by avoiding the use of publiccomputers or wireless hotspots forfinancial transactions.