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
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