Understanding checking
Reflecting on Checking:
Checks, the other paper instrument
Everybody knows that a lot of people keep track of credit card activity. The network for credit card information is so highly developed that credit cards information is often available to vendors at the point of retail sale. Just think of the last time you used your debit or credit card and you will see just what I mean. But a lot of people lose track of the bigger credit picture when they only think about how they are handling their credit cards. There are; others who watch and record checking account activity, and they often do it for the same reasons that people look at your other forms of credit. So you want to make sure that all your ducks are lined up in a row so that your credit stays good at every place you go. This is how you make your credit grow.
I the old days people used checks for several reasons. Check users often were people who didn’t wan to use credit cards. Perhaps they were responding to the terms of a seller who wished to be paid by check. Or maybe they wanted the document as a memorial, or record, of their transaction.
No matter what the reason, checking offered the buyer something that instant credit could not, and that is the element of time. Instant credit may not give you the chance to try-out and adequately inspect the item to be purchased. It is not uncommon for something to end up working differently, or looking differently, than we think it will when we see it on the showroom floor. The check has to clear the bank and go through posting- and this may take a little time. That often gives the buyer the chance to study the purchased items really well and better determine if it meets their needs. If it is not right the buyer can cancel the check and not have to go through any problems in getting their money back. The buyer can just say, for example, that the washer does not fit the space or décor of the house and stop the check. Then the seller can come out and get the item and the buyer gets their money back.
Well, some check users noticed that the time between the issuing of the check and its presentation to a bank and processing represented a period of time that they could say they had credit that was not actually there, and some people did just that.
Sometimes they would pay for things at the end of the week and hope to replace the funds by the time the check went through. The distances the bank of the buyer and seller make this crooked little game all the more interesting and inviting. The problem was that nobody was happy if the person who wrote the check did not come up with the money. Bankers figured out what was happening to them but their hands were bound by the law. The laws of checks call for certain procedures in their processing and some of these rules mention the presentation of the actual check. What this means is that if your bank is in California and you go to Florida to charter a boat to fish for marlin, like Hemingway used to do, and you use checks to pay the Captain and crew in Florida, that no one will know if you don’t actually have the money in your account until the Captain’s bank seeks payment of the check from the bank in California.
This state of affairs has had bankers unhappy for some time, but now it seems that they’ve done it- they’ve found a way to process checks more quickly and that means that there is less and less time from time you pay with a check to the time the balance is displayed for the check.
Check 21 is the name of a new law passed a few years ago to help speed up check chasing by letting the bank sidestep some of the processing procedures required by law. The bank can get away with making a “substitute check” that it can pass freely. A substitute check is the legal equivalent of the original check. It has all the same all the information contained on the original check. Now there is nothing in the law that says that banks have to accept checks in this electronic form but you may discover these substitute checks among the real ones you get with your periodic statement and that is why they are in there. What this means in layman’s terms is that each of us has to be a little more careful in managing our checking account these days because you don’t want to snared in a broad net that scoops you up along with some shady characters.
So for the unscrupulous check writer this makes writing checks for amounts beyond those available at the time they write the check a kind of Russian roulette proposition. They have to ask themselves just one question, do they feel lucky? But for the average consumer it presents a sort of mine-field where you could find yourself standing on shay ground because a shorter time frame than you are used is in effect.
To see what this recipe can lead to just remember that credit agencies keep information on checking history. This means that third parties can see this information and make judgments about you on its basis! Will they even want ask you if you can explain a legitimate mistake? Will they even care? Let’s just say that some unhappy consumers have learned, to their horror and dread, that even one bounced check reported by one of these services may be enough to make it difficult for you to open a new transaction account or get a merchant to accept your check as payment.
Check reporting is there to protect financial institutions and retailers from losses due to over drawn or fraudulent checks. What’s more, the Fair Credit Reporting Act (FCRA) is federal law that lets records of checking “irregularities” that come to their attention to stay on your private records for as many as seven years.
