Community News Articles:

A PLACE OF GRACE [MORE]

POWER COMPANY BREAKING NEW GROUND [MORE]

AREA BANK SUPPORT LOCAL COMMUNITY [MORE]

YOUNG BUSINESS LEADERS OF BIRMINGHAM [MORE]

Why was the legislation passed?
A trigger was the grounding of the nation’s air carriers in the wake of 9/11—and the resulting delay in the transfer of checks between financial institutions. To ensure that the banking system would never again be subject to this kind of disruption, Congress passed the Check Clearing for the 21st Century Act, allowing banks to transfer funds using electric facsimiles of checks. Though enacted as a security measure, the law’s implications are far reaching and are now affecting the day-to-day operations of every individual and business account, large and small.

What are the provisions of the new law?
As of October 28, 2004, banks have a new negotiable instrument at their disposal—the substitute check. This electronic facsimile allows banks to transfer funds, instantly between the account on which the check is drawn and the account into which it is deposited, without the original paper check every changing hands. It’s hardly business as usual, particularly for individuals and companies with a greater reliance on the “float” factor that paper checks have traditionally provided.

How is it changing the way we do business?
The good news first. Once you deposit a payroll check, those funds will be available in a matter of hours, providing you with some quick cash to pay bills. On the minus side, the checks you write to pay bills will also clear in a matter of hours, so you can no longer factor in the float in managing your account. The new rule of thumb, pay only those bills for which funds are available at the time you write the check. This will require you to monitor your balance more frequently and to time your payments more carefully, especially when large bills come due.

What do I need to do right now?
As a point of law, the Check 21 Act enables banks to use substitute checks but does not require them to do so. Talk to your bank and see where they stand on implementing the provisions of the law. In addition, this may be the time to do some financial reassessment of your own. Now that cash flow will be a greater variable, you should consider alternative bill payment methods that can help restore some measure of financial control.

To learn more about the Check 21 Act and its impact on you, visit the federalreserve.gov/paymentsystems/truncation/default.htm.