WASHINGTON (AFP) - Electronic banking in the United States took
another step forward as a new law took effect allowing digitized
images of checks to become their legal equivalent.
The new law, aimed at easing the burden of transferring billions of
paper checks between banks, has drawn praise from the banking industry
as a more efficient way of moving money, but is being criticized by
some consumer advocates.
The Check Clearing for the 21st Century Act, or Check 21, was pushed
by the industry and regulators in the wake of the disruption to
banking following the September 11, 2001 attacks.
Under the law, any bank in the check-processing chain can convert the
original check into a digital image known as a substitute check and
throw away the original. Banks are required to accept the digitized
images as the "legal equivalent of the original check for all
purposes."
For consumers, the change may mean an end to the "float"
time of several days for a check to travel between banks and clear.
"The guy who is trying to cut corners and get an extra few days of
float? That's history," said Mark Simmons of Commerce National Bank in
Fullerton, California. "They're going to be in for a big surprise."
"Banks will save money on processing checks, but banks are not
required to share these savings with consumers," says a guide to the
new law from Consumers Union.
Consumers are unlikely to get their cancelled checks back, although
some banks had already stopped this practice.
Some say consumers may take an additional hit because Check 21 does
not require banks to shorten the holds they put on deposits.
And because the law allows banks to create checks with customer
information on them, some fear Check 21 will foster fraud, increase
mistakes and violate consumer privacy.
But Nessa Feddis of the American Bankers Association says making the
system more efficient will have benefits for consumers.
"Check 21 will help to eliminate the need to use special, dedicated
planes and trucks to transport checks around the country," Feddis
said.
"In addition, natural disasters (hurricanes, and earthquakes) as well
as terrorist threats can have a detrimental impact on the timely
transportation of paper across the country. Electronic processing can
help mitigate some of these issues and provide a more stable banking
infrastructure. Merchants may also gain efficiencies in their banking
practices. The efficiencies, which will be gained over the long term
rather than immediately, will reduce banks overhead costs, and those
savings will help consumers."
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