You May Not “Float”
Banking laws are changing soon and those who use “float” may be surprised when it disappears.
“Float” is the time that passes between when a check is written and when it clears the bank.
Here’s an example:
John Doe visits the mall and buys a pair of $40 shoes by writing a check. He does this knowing there isn’t enough money in his checking account to cover it.
Joh Doe also knows pay day is 2 days away when he will deposit his pay check into his checking account. He knows the store will deposit the check he wrote for the shoes tomorrow and that it won’t clear until the next day when he has deposited his pay check.
In effect, John Doe used “float” and gave himself a 2 day, $40.00 loan at 0% interest!
People may find it more difficult to arrange personal loans like this after the new “Check Clearing for the 21st Century Act” becomes effective on October 28, 2004. The law’s nickname is “Check 21″.
You can learn the details about Check 21 by visiting the Federal Reserve Board’s web site at:
http://www.federalreserve.gov/paymentsystems/truncation/faqs.htm
In a nutshell, however, Check 21 makes a digital image of a check a legal substitute for the actual paper check.
Currently, banks must transfer paper to move funds from the account a check is written against to the account of the one depositing the check. Check 21 allows banks to transfer money by use of the digitial substitute which can be transmitted from bank to bank electronically … at the speed of the ‘net.
This new law may save the banking industry as much as $2 billion a year.
BUT, don’t expect to see any of the savings returned to you. Banks like money.
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