How Does Check 21 Affect You?
By Roger Sorensen, Sat Dec 10th

Every year nearly 60,000 airplanes take off and land with anestimated 36 billion paper checks at an annual processing costof $8 billion. Who pays this $8 billion dollars? The banks andcredit unions across the nation, that's who. Why do they go toall this effort and expense? Many state commercial codesstipulated that only a canceled check was proof positive ofpayment. Since there are nearly 18,000 financial institutions inthe United States, most of them have not been able to chargefees to cover this $8 billion cost of letting you have achecking account. This means that all of that money has to comeout of other fees, penalties and loan rates. At least this wasthe truth until October 21, 2004 when a new federal law tookeffect trumping states rights to regulate banks within theirborders. The Check 21 Act allows a paper preprint of a check tobe considered the equivalent of the original check. In Englishthis means a bank in Oregon can copy a deposited check, send theimage to your bank via electronic means and receive their moneyall in the same day. Image exchange checks will not replace theold fashioned method of moving paper checks any time soon,though the number of checks written a year is decreasing anestimated 5%. Analysts expect the image exchange checks tosurpass paper processing in 2006. So why do banks want to investin the equipment and security measures necessary to move checkselectronically when the other method works? I can name you 5reasons for every check every financial institution handles andthey are all named Lincoln. Every check a bank does not handleis a savings of 5 cents, for an annual average savings, perbank, per year, of $266,000. How will this affect you, theconsumer, who writes 120 checks a year for every man, woman, andchild in this country? It doesn't affect you very much, exceptyou will likely be receiving a printout of your checks withevery statement. The exception to this is if you are one of themillions of consumers who will write a check on Thursday, theday before your paycheck is deposited. You have becomeaccustomed to writing a check and having a couple days to getthe 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 bedeposited, trucked and flown to your bank. With image exchange,the float is sunk. Through 2006 the banks and credit unions cancollect an estimated $170 million per month in bounced checkfees on nearly 7 million checks written on accounts before themoney was in the account. That $170 million translates into 5cents for every check written in the nation, or nearly $266,000per bank, per year. This money will be taken from consumers inthe form of "service fees", turning that $35 check into a $70check because of the $35 bounced check service fee. Who is morelikely 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 operatewithout checking accounts. The ultra-above make more than$250,000 and use electronic or plastic means of paying for theirpurchases and everyday expenses. That leaves the rest of thenation, approximately 200,000,000 of us to provide enoughservice fees for the banks to average a quarter million dollarsin unearned income each year. We're the people writing 10 checksevery month for every member of our household. We're the busyparents of active children trying to do everything and beeverything in what we call an American dream. How can youprotect yourself and keep from adding to your banks bottom line?Control your checkbook and perhaps even change your spendinghabits. 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 thisin a very simple, practical, and easy manner. Flip-flop theorder of writing checks. Let me demonstrate on Sue, a typicalmother of two children (12 & 14) who works at a local officebuilding. Every Friday her weekly paycheck is deposited in herchecking account electronically. How Sue will respond to Check21 is that from now on she will no longer do the groceryshopping on Thursday after practice. Instead she willwait until Saturday after gymnastics, or even Monday on her wayhome from work to swing by the store and pickup a couple bagsgroceries for the week. By making this switch in routine, shewill know the money for the groceries is in the bank. Now let'smake the assumption that instead of some imaginary woman namedSue, this person was you. Did you see what happened? Instead ofwriting a check before the money was in your account, you waitedto write the check after the money was in available. Thisguaranteed your check would clear and you would not be chargedany unexpected service fees. By waiting to write checks untilafter the funds are in the account will take a little practiceon your part and might be more difficult to do than it sounds.If you make the effort, and train yourself to think like abanker so you can avoid service fees, you will come out moneyahead. As the rules of banking change, you have to know andunderstand your rights and what these rule changes mean to you.Check 21 legislation was enacted to make check processing easierand more convenient for financial institutions across thecountry. They are also anticipating a surge in income throughservice fees. Do your best to avoid padding their bottom line -write checks only after the money is in your account.

Roger Sorensen is a Financial Literacy Speaker and Author - hisbook "You Don't Own Money" is available online athttp://www.amazon.com/exec/obidos/ASIN/0595186815/brighterfutur-20.

About the author:Roger Sorensen is a Financial Author and Speaker, and the editorof Money Basics, a monthly personal finance newsletter foundonline at www.brighterfutures.com. After filling in his own debtpit equal to 150% of his annual income, Roger has turned theexperiance into Brighter Futures, a Financial Literacy company."There is hope for you, no matter how large your debt load mightbe."