Bouncing checks easy to do during the holidays
Now that the holiday shopping season has officially started, the Better Business Bureau reminds consumers who plan to write checks to remember the new Check 21 law that went into effect in October. No more float!
The Check Clearing for the 21st Century Act, also known as Check 21, shortens the float time on the checks you write. This means if you write a check at a retail store today, chances are the check will be processed electronically and the money could be debited from your bank account on the same day.
Watch your checking account balance when you write a check very carefully or you will lose money in unintentional bounced check fees. For example, let’s say you are shopping in the mall at your favorite retail store. If the store accepts checks and has installed a remote deposit terminal at its front desk, a customer’s paper check can be transformed into a substitute check on the spot, and in a flash the check immediately starts the bank clearing process.
While the new law speeds up how quickly funds can be taken out of your checking account, it does not speed up the length of time in which your bank must make funds available from the checks you deposit. Consequently, the bank may still have a standard two-day hold on the local payroll check you deposit, while the checks you write to pay your bills or holiday shopping could clear in hours or even minutes,
The good news is there is a provision in Check 21 that directs the Federal Reserve Board to review the rules governing deposit holds and submit the results to Congress. According to the Federal Reserve, if the study finds that checks are clearing faster, the rules will be amended governing the maximum hold periods. But the Fed has over two years to complete the study.
Now more than ever it’s important to know when money from your deposits will be available BEFORE you start writing checks. Banks are required to disclose their policies to customers when they open an account. They are also supposed to post their rules in their bank branches.
Under the Federal Reserve Board’s regulations, banks must release most funds within one to five business days after the day you make a deposit. Here’s the Federal Reserve breakdown:
ONE DAY – Funds from U.S. Treasury checks, money orders, and cashier’s checks, certified or teller’s checks are supposed to be available the first business day after you deposit.
TWO DAYS – Banks are allowed to hold a local check for two business days after the day you deposit the check.
FIVE DAYS – Banks are allowed to hold an out-of-town check for up to five business days after you make the deposit.
As you might expect, there are exceptions to the Fed rules. Banks are allowed to extend the hold periods for deposits to accounts that have been open for less than 30 days. Banks are also allowed to extend the hold period if your check is more than $5,000, if you have bounced a lot of checks, or the bank has reason to believe the check is not collectible.