Every year nearly 60,000 airplanes take off and land with anestimated 36 billion paper checks at an annual processing cost of $8billion. Who pays this $8 billion dollars? The banks and creditunions across the nation, that's who. Why do they go to all thiseffort and expense? Many state commercial codes stipulated that onlya canceled check was proof positive of payment.
Since there are nearly 18,000 financial institutions in the UnitedStates, most of them have not been able to charge fees to cover this$8 billion cost of letting you have a checking account. This meansthat all of that money has to come out of other fees, penalties andloan rates.
At least this was the truth until October 21, 2004 when a newfederal law took effect trumping states rights to regulate bankswithin their borders. The Check 21 Act allows a paper preprint of acheck to be considered the equivalent of the original check. InEnglish this means a bank in Oregon can copy a deposited check, sendthe image to your bank via electronic means and receive their moneyall in the same day.
Image exchange checks will not replace the old fashioned method ofmoving paper checks any time soon, though the number of checkswritten a year is decreasing an estimated 5%. Analysts expect theimage exchange checks to surpass paper processing in 2006.
So why do banks want to invest in the equipment and securitymeasures necessary to move checks electronically when the othermethod works? I can name you 5 reasons for every check everyfinancial institution handles and they are all named Lincoln. Everycheck a bank does not handle is a savings of 5 cents, for an annualaverage savings, per bank, per year, of $266,000.
How will this affect you, the consumer, who writes 120 checks a yearfor every man, woman, and child in this country? It doesn't affectyou very much, except you will likely be receiving a printout of yourchecks with every statement.
The exception to this is if you are one of the millions of consumerswho will write a check on Thursday, the day before your paycheck isdeposited. You have become accustomed to writing a check and having acouple days to get the money into the account before the checkreaches your bank. You are using what is called the float principle.Simply put, the float principle is the amount of time it takes acheck to be deposited, trucked and flown to your bank.
With image exchange, the float is sunk. Through 2006 the banks andcredit unions can collect an estimated $170 million per month inbounced check fees on nearly 7 million checks written on accountsbefore the money was in the account.
That $170 million translates into 5 cents for every check written inthe nation, or nearly $266,000 per bank, per year. This money will betaken from consumers in the form of "service fees", turning that $35check into a $70 check because of the $35 bounced check service fee.Who is more likely to have insufficient funds in their checkingaccount - the above average income or the below average incomeconsumers?
I guess it depends on your definition of below average income. Theultra-below make less than $10,000 a year and mostly operate withoutchecking accounts. The ultra-above make more than $250,000 and useelectronic or plastic means of paying for their purchases andeveryday expenses.
That leaves the rest of the nation, approximately 200,000,000 of usto provide enough service fees for the banks to average a quartermillion dollars in unearned income each year. We're the peoplewriting 10 checks every month for every member of our household.We're the busy parents of active children trying to do everything andbe everything in what we call an American dream.
How can you protect yourself and keep from adding to your banksbottom line? Control your checkbook and perhaps even change yourspending habits. As more and more banks switch to the Check 21system, you have to be ready for when it happens to you.
You can do this in a very simple, practical, and easy manner. Flip-flop the order of writing checks. Let me demonstrate on Sue, atypical mother of two children (12 & 14) who works at a local officebuilding. Every Friday her weekly paycheck is deposited in herchecking account electronically.
How Sue will respond to Check 21 is that from now on she will nolonger do the grocery shopping on Thursday after soccer practice.Instead she will wait until Saturday after gymnastics, or even Mondayon her way home from work to swing by the store and pickup a couplebags groceries for the week. By making this switch in routine, shewill know the money for the groceries is in the bank.
Now let's make the assumption that instead of some imaginary womannamed Sue, this person was you. Did you see what happened? Instead ofwriting a check before the money was in your account, you waited towrite the check after the money was in available. This guaranteedyour check would clear and you would not be charged any unexpectedservice fees.
By waiting to write checks until after the funds are in the accountwill take a little practice on your part and might be more difficultto do than it sounds. If you make the effort, and train yourself tothink like a banker so you can avoid service fees, you will come outmoney ahead.
As the rules of banking change, you have to know and understand yourrights and what these rule changes mean to you. Check 21 legislationwas enacted to make check processing easier and more convenient forfinancial institutions across the country. They are also anticipatinga surge in income through service fees. Do your best to avoid paddingtheir bottom line - write checks only after the money is in youraccount.
Roger Sorensen
America's Financial Guide can be found at ==>http://www.Slave2Work.com Subscribe to Money Basics via http://www.slave2work.com/ezine.html
Slave2Work.com - Are you ready for financial freedom?