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Don't Write Rubber Checks
According to Consumers Union (CU), "Consumers will be more likely to bounce checks and may find themselves paying higher fees under a new federal law that allows banks to process all checks electronically..." CU's primary concern with the "Check 21" law appears to be that consumers "will enjoy less ‘float,' meaning that the checks they write will clear faster. Under the new law, checks could clear in hours instead of days. But banks won't be under any obligation to speed up the processing of checks that consumers deposit into their accounts. That could mean more bounced checks and more overdraft fees paid by consumers."

There seem to be two issues issue here, one is the faster, i.e. more efficient, processing of checks written by consumers. It sounds to Winston as if the new law allows for improved speed and efficiency in processing check-based transactions. It is difficult to understand why this enhanced efficiency would not be seen as a positive development that could benefit the larger economy. What causes Winston concern is what appears to him to be CU's desire to allow consumers to write checks for balances greater than they have in their checking accounting.

Although Winston never went to law school, he always thought that it was illegal to write a rubber check, i.e. a check for more than you have in your checking account. The term check "kiting" comes to his mind. In fact, lists one definition of "kiting" as a "bank check drawn on insufficient funds to take advantage of the time interval required for collection." Winston must clearly be confused on this issue as he cannot imagine a consumer watchdog organization with as long and distinguished a history as Consumers Union opposing a law that would likely reduce financial crimes.

The second issue CU raises seems to be a more valid concern. Specifically, according to CU, under the new law, banks will not be required to speed processing of checks deposited by consumers. Again, Winston is confused. If banks are technologically and legally able to speed the processing of checks drawn on their accounts, then why are these same institutions not similarly speeding the processing checks deposited into those same accounts?

Winston supports faster, more efficiency (and more accurate) processing of financial transactions. However, he believes that any improved efficiencies should be applied as equally as possible to deposits as well as withdrawals. Applying improved efficiencies in a symmetric manner is not simply a matter of "fairness," it is an issue of improving the overall workings of the US financial system to the benefit of all stakeholders. Overall, Winston can support the portion of the CU recommendation that reads, "Give consumers the benefit of faster check clearing by crediting consumer accounts when the check clears, even if the law allows you to wait longer for deposited checks." What Winston cannot support is the notion that writing rubber checks is an acceptable practice.

  • Click for CU Press Release.

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