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Welcome To The Realm Of Online Bank Statements
The tradition of paper bank statements is going the way of the dinosaur. In the future, if you want paper, it'll cost you.
by Ray Pelosi
November 1, 2005
W
hether or not you own a business, you ought to know what the federal law called Check 21
is all about, because it's changing the way paper checks will be processed and what companies and
consumers will get back with their bank statements. A little background is in order. Just over a
year ago, the Check-Clearing Act for the 21stCentury, a.k.a. Check 21, went in to effect, requiring
banks to accept micro-encoded substitute checks created from the digitized images of original paper
checks. It didn't require citizens or businesses to do anything at all, then or now. They can still
write checks like they always have, but they might not get those originals back after they're
cancelled.
Processing Mode Is The Bank's Decision
That's because Check 21 lets banks clear payments in one of three ways - traditionally using paper checks with monthly statements; reproduction or "imaged" copies of checks or check data absent the cancelled paper checks; or by returning the substitute checks, also known as Image Replacement Documents, or IRDs.
The thing is, you as a businesswoman or private individual can't choose how the record of those cleared checks is returned to you. You have to accept IRDs, even if you don't want to.
"There is no option for that," confirmed Lee Crocker, senior vice president of Enterprise Information Services at SunTrust Bank. "A consumer can't tell his bank, 'Hey, listen, don't convert my original check to a substitute check.' You cannot legally do that. All checks that people write will be fair game for conversion to substitute checks. Individuals and banks need to know they won't have any control over this."
As the proliferation of substitute checks becomes more common, more banks will be issuing statements in this fashion. If your bank isn't doing that now, check to see when and if they'll be converting to that mode so you can plan for it.
That's not to say that people can't ask for substitute checks back from their bank if they don't customarily receive them. But that might come at a cost, partly because the banks themselves will pay an incremental expense to produce the IRDs. Shortly before Check 21 was in force, Cathy Towles, SunTrust's deposit line manager for business accounts, predicted that "people will start to see banks put pricing around the return of checks to try to drive people to receive either online or image statements. On the business side, the check return process will carry a cost."
Remember, while banks are obligated to accept substitute checks under Check 21, they're not required to issue them. If you ordinarily reconcile your checking account electronically or through imaged statements but you need a physical check reproduced for legal purposes "that would simply be a matter of requesting a substitute check from the bank," Towles said. "That's where the cost would come in." However, she suspects that banks would allow their customers some free substitute checks before beginning to charge for them. "On the business side, you might get one or two or three at no cost but if you want, say, 20, you'll probably have a cost." As more and more banks decide to move toward imaged statements and substitute checks under Check 21, they'll be destroying the paper check originals, so people won't be able to request them with their statements after the fact.
Substitute Check Protections
You may wonder if a substitute check is as reliable as a paper check for validation purposes. First, these are legal, negotiable instruments and must carry the image of the front and back of the original check on the substitute item. With the impetus of Check 21, banks will be entering bilateral agreements, with liability assignments, that govern their receipt and transmission of digitized check images from which the substitute checks are made. "Typically, the bank creating the image warrants the check as a true representation of the original check," Towles explained. "If, as a presenting bank, I've captured an image and presented it to the recipient bank and you come in and say, 'I need a substitute check for the check I wrote to Georgia Power because they say I haven't paid them,' and the recipient bank then creates a substitute check from the image we sent, then they assume the liability at that point."
Can fraud be perpetrated by tampering with the imaging of the paper check? There is some evidence that the quality of watermark and ink reproduction eventually decreases over time, and consumers might not have access to the original paper and inks that reveal pressure points and other distinguishing facets, but banks can take precautions by using tools like reference recognition technology, which electronically compares signatures with signature cards on file.
Check 21 does have provisions exclusive to consumers, such as an expedited re-credit procedure. If a consumer suffers a loss from a substitute check that wouldn't have occurred if the original check had been processed, the bank has 10 days after the consumer's claim to research and credit the consumer's account up to $2,500 and 45 days after the claim to credit the remainder of the amount due.
If you're a businesswoman who just can't part with the idea of getting that paper check back, consider this comment last year from David Fuller, SunTrust's senior vice president of treasury management:
"What companies really need to ask themselves is, do they really need the check once they've written it? The answer is no. If they get into a dispute with a client who says they didn't receive the check, they can go into an image archive and have a substitute check made, if that's necessary.
"It's a waste of space and there's no value in getting the paper checks back. Given the legal requirement for businesses to store paper checks for 7 years, why would they want to do that?"
Opportunities For Commercial Customers
As image exchange technology improves, more banks will adopt it and the banking community will save more time in processing payments. That will benefit their commercial clients by accelerating cash flow, and therefore, the availability of funds. Moreover, commercial clients can arrange with their banks now to make their deposits in digitized form. They'll be able to scan incoming checks at their offices and then transmit them digitally to their banks.
The positives are considerable for corporations: it takes them less time and money to collect checks and send deposits and lets them centralize their deposit banking operations. "It saves the time, energy and risk involved in moving checks from their offices to the depository banks," remarked David Fuller, SunTrust's senior vice president of treasury management. "This is the initial exciting development for the corporate markets. These companies will have a scanning device to scan customer checks and upload them to their banks without leaving their offices."
U.S. companies with foreign operations will get a boost under Check 21 because overseas companies that receive checks can establish U.S. bank accounts and, in effect, make immediate deposits through digitized check capture.
More highly efficient check clearing, much less paper to deal with and faster availability of deposited funds are what people can expect from Check 21 - and they don't even have to do a thing to reap those benefits.
Floating That Check May Swamp Your Bank Balance
Because Check 21 is making the banking system more efficient, checks are processed and cleared more quickly with the replacement of paper by imaging technology. So you get your money credited more quickly, but you can't resort to the old practice of floating checks without the risk of having insufficient funds in your account.
Float time - the period from the writing of a check until it actually clears - has shrunk under Check 21. Business owners now will get clearance on their checks within days, hours or even minutes. If you've gotten into the habit of floating checks, even for a day or so, figuring you'll have the money in place to cover them before they are processed, now's the time to break the habit. If you need to wean yourself from the habit while you adjust to Check 21, take care that your account overdraft protection is sufficient.
The consequences of getting caught in mid-float with your balance down aren't pleasant: bounced check fees, a downgraded credit rating and the humbling anguish of calming down unhappy customers or suppliers who were left holding those rubber checks.
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