By GWENDOLYN BOUNDS
“When it comes to the new ‘Check 21’ banking law, a recent survey of small businesses found that nearly three-quarters of them had never even heard of the new regulation. Yet when it goes into effect this fall, Check 21 will pave the way for major changes in the way small firms do business — not only with banks, but with customers and suppliers as well.
For those unfamiliar with Check 21, the law was designed to facilitate the way banks move checks around the country. Currently some 40 billion paper checks are shuttled between banks each year by airplane and ground transportation before being cleared and returned to check writers in the mail.”
– U.S. banks make a large amount of money on the float (the time between when a check is deposited or written and when it clears) that is artificially created when they physically move a paper check around. Check 21 will remove or greatly decrease that float but banks still rely on the float to make money so it will be artifically added to the processing time. It may take a bank 2 hours to process a check using Check 21 but they will still not make funds available until the next business day, unless you pay for the service. This will continue until the banks can replace the float business model they now use with something else and is also the reason why the U.S. is not totally electronic in payment processing, using paper checks, while most European countries are completely electronic and most consumers don’t even know what a check is. -ed.