New system means checks clear faster

Remember back in the day when you wrote a check and you could count on at least a few days before it was cleared by your bank?

That float bought you some time to deposit a check to cover the one you’d already written. Or gave you a chance to deposit cash into your account.

Well, the float is mostly being washed away. Beginning Friday, merchants will be able to take advantage of a new way to electronically clear checks. It’s called “back office conversion,” or BOC.

This process allows retailers and businesses that accept consumer and business checks of less than $25,000 to clear them through the ACH network, which is the same network used for payroll direct-deposit transactions. The checks are then converted from paper to an electronic debit later at a centralized location.

This process isn’t as immediate as a debit transaction, but if you write a check during the day, you can count on it clearing the following business day.

The move to a paperless payment system has been going on for a while.

The Check Clearing for the 21st Century Act, or Check 21, took effect in 2004. This law allows banks to replace paper checks with digital copies of the originals. Check 21 was intended to eliminate the time-consuming process of having to transport deposited checks across town or across the country to an originating bank for clearance.

Under Check 21, banks create digital copies of the front and back of your checks and electronically transmit those copies through the banking system. This means checks can clear in hours instead of days and a bank can quickly debit your account for checks that you write, although banks aren’t obligated to speed up the crediting of checks that you deposit into your account.

For the most part, the conversion process will be invisible to consumers. But you still need to know how this works and what your rights are.

Merchants are required to disclose to customers that their checks will be converted into an electronic payment, according to rules established by the nonprofit Electronic Payments Association that develops business practices for electronic payments. The notice has to be prominently displayed at the register and on a customer’s receipt.

Businesses such as credit card companies, mortgage lenders and others to whom you pay bills with a check must provide this written notification of the back office conversion on the billing statement or on a separate enclosure with the bill you receive in the mail.

According to the NACHA, If a check that you’ve mailed to pay a bill is destined to be converted in a BOC transaction, the business must securely store the original paper check until it is destroyed. NACHA also requires businesses to take steps to ensure that the paper check will not be presented for payment after it has been electronically converted.

One of the benefits is that your bank statement has to include descriptive information about the check, including the check number, the date and amount of the check, and the name of the payee. The transaction also can show up as an electronic funds transfer, similar to an ATM withdrawal, according to Elliott McEntee, president and CEO of NACHA.

“This will make it easier for people to reconcile their statement,” McEntee said.

You can opt out of having your check electronically converted in a back office process, said McEntee. In that case, companies will have to specify how you can opt out.

Having your check converted through a BOC has another advantage, McEntee said. Because the transaction is being electronically processed, it is covered under the Federal Reserve’s Regulation E, which provides extra consumer protections for electronic fund transfers, such as a longer time to report an error. Additionally, McEntee said, under NACHA rules, if there is an error or unauthorized debit from your bank account, the financial institution has to immediately credit the money back to you while an investigation is conducted.

For retailers, there are big savings to be had with back office conversion, said Danne Buchanan, chief executive of NetDeposit, a Salt Lake City company that provides check payment technology.

Retailers don’t have to physically take the checks to the bank, and accelerated processing results in fewer bad checks, according to Buchanan.

“There are fewer people handling the check and that lessens the opportunity for loss, fraud and/or confusion in the check clearing process,” he said.

Although merchants can begin back office conversion starting Friday, McEntee said many may decide to test it before implementing it throughout their stores.

Still, let this be your notice. For the most part you no longer have a check-clearing cushion. The various ways businesses are clearing checks mean that when you write a check, you better have the money in your account.

Washington Post Writers Group

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