Canceled checks, already an endangered species, are about to become even rarer. They may even be headed for extinction.
A big step in that direction will take place Oct. 28 when a new federal law takes effect, making it far easier for banks to use computers to clear checks. The new law, known as "Check 21," allows banks to transmit check images electronically, then print out these images as "substitute checks" and return those depositors in lieu of the original.
The need to ship millions of pieces of paper from one end of the country to the other will be greatly reduced.
For the majority of checking account holders -- who already don't get their canceled checks back -- there will be little visible change. Those who do still receive canceled checks will see instead a mixture of traditional ones and the new substitute checks. The substitutes will show the front and back of the check they represent and will be treated as the legal equivalent of the original.
Banks think this is a really good idea.
The new law, formally called the Check Clearing for the 21st Century Act, "is meant to bring check processing from the Pony Express era into the computer age," said John Hall of the American Bankers Association.
Banks in recent years have had the technology to exchange electronic images of checks, but, because of legal restrictions, broad use of such systems has been impractical. A key provision of Check 21 is elimination of the requirement that, to be paid, a bank must present the paper check to the bank on which it was written, unless the paying bank has agreed otherwise. It also preempts state laws allowing bank customers to demand return of their original checks.
"What the substitute check is really going to be is a catalyst to enable widespread adoption of image exchange," said Jason Hunt, a vice president at Wachovia Corp.
It will allow a bank to take a check that is presented to it, convert it to an image, and transmit that image to the bank on which the check was drawn. That "paying bank," in turn, could create a substitute check to give to its customer who wrote the original, either as a regular thing if the customer ordinarily gets canceled checks, or upon request, if the customer needs it for some reason.
Banks are not required to accept electronic images. If they don't, a third bank or other processor will receive the image, create the substitute check and ship it to the paying bank.
Paper canceled checks would not be forbidden by Check 21, but the industry's "ultimate goal," Hunt said, is to eliminate both regular canceled checks and substitute checks -- and the millions of dollars in costs that shipping, sorting and mailing them now involve.
Consumer groups are less enthusiastic.
"The argument has been made that you if speed things up, benefits will somehow trickle down to consumers," said Gail Hillebrand, senior attorney in the West Coast office of Consumers Union. But the law generally doesn't mandate that, she said.
For example, checks, particularly those drawn on distant banks, will clear more quickly, but banks are not obligated to shorten the "holds," or make a depositor's funds available any sooner (though the Federal Reserve is required by other law to tighten hold rules if clearing generally speeds up).
At the same time, checks you write will also clear sooner, shortening the old-fashioned "float" that many consumers use to write checks in advance of when they actually have the money in their account.
After Check 21 takes effect -- the date is Oct. 28 -- "don't write a check if you don't have the money in the account," Hillebrand said.
Hillebrand said protections in the event of a foul-up may be more cumbersome than before. Check 21 mandates that banks recredit a depositor with up to $2,500 if a check is paid twice, for the wrong amount, or in some other way paid erroneously. But those rights are triggered only if the depositor received a substitute check. Other types of images that banks sometimes send to depositors with their consent do not trigger Check 21 rights, she said.
"You should be able to get . . . a substitute check that is proof of payment. But you may have to pay a fee for it, and there may be a delay," she said.
She urged consumers to ask for substitute checks on the same terms as canceled paper checks and to try to find another bank if they are not provided or if fees are too high.
If consumers find the changes confusing, it's no surprise. Lots of things have been going on with checks.
For several years, banks and some merchants have been using "check conversion," which involves scanning a check into a computer, capturing data on it, and turning it into an electronic funds transfer. This can happen at the cash register when a consumer pays for a purchase with a check. Instead of accepting the check in the traditional way, the clerk runs it through a scanner and returns the paper document to the consumer. In other cases, businesses that get checks in the mail convert them this way. Legally, the check is treated, not as a check, but as an authorization to initiate an electronic payment.
Hunt said Wachovia and other banks understand that many "check writers have a real passion for" their canceled checks, "a real sense of ownership. They hug it at night. But what the check is becoming is a disposable debit card. There is a shift in the payments paradigm," to which customers will need time to adjust.
In the meantime, "we are going to have a great deal of sensitivity," he said.
Here are some numbers to think about, from the Bureau of Labor Statistics and the Census Bureau: Between 2000 and 2040, the number of Americans 65 or older will more than double, to 77 million, a trend that will turn sharply upward in 2011 when the oldest baby boomers reach age 65. But at the same time, the number of children will also grow relatively rapidly, compounding the pressures on working adults. In 2040, the number of Americans either under 18 or 65 or older will exceed the number of prime working-age adults by 21 percent. In 2000, by contrast, prime working-age adults outnumbered dependent children and elderly adults by 14 percent.
The Internal Revenue Service reminds taxpayers who obtained filing extensions in the spring that their deadline is a week from tomorrow. Taxpayers with special circumstances, such as a hardship, that prevent them from filing by then may request an additional two-month extension -- to Oct. 15 -- by filing Form 2688.