Technology Sinks the Check Float

By Michelle Singletary
Thursday, March 15, 2007

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 time to deposit a check to cover funds for one you'd already written. Or gave you a chance to run and deposit cash into your account.

Well, the float is mostly being washed away. Beginning tomorrow, merchants have 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 Automated Clearing House Network, which is the same network used for payroll direct-deposit transactions. The checks are then converted from paper to an electronic debit 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 next 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 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 that checks can clear in hours instead of days and that a bank can quickly debit your account for checks you write, though banks aren't obligated to speed up the crediting of checks you deposit.

For the most part, the back-office 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 NACHA-The Electronic Payments Association, which 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.

If a check you've mailed is destined to be converted in a BOC transaction, NACHA notes, 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 of back-office conversion is that your bank statement has to include descriptive information about the check including the number, the date and amount, and the name of the payee.

The transaction also can show up as an electronic-funds transfer, similar to an ATM withdrawal, says Elliott C. McEntee, president and chief executive of NACHA, formerly the National Automated Clearing House Association.

"This will make it easier for people to reconcile their statement," McEntee says.

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

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

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

Retailers don't have to take the checks to the bank, and accelerated processing results in fewer bad checks, Buchanan said.

"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 tomorrow, McEntee pointed out that many may decide to test it before implementing it.

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'd better have the money in your account.

· On the air: Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and online at

· By mail: Readers can write to her at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.

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