Ask Bonnie

As old checking rules fall, so should bad checkbook habits.

BOSTON (MarketWatch) — It may be a good thing that more kids are using debit cards these days, because most parents couldn’t teach them about managing a checking account.
The problem is not so much that most adults fail to balance their checkbook — although they do. It’s that the rules involving checks keep changing. The latest change went into effect last week, and it pretty much ends the concept of “float” that many consumers grew up with. Technically speaking, float is the dollar value of cash balances created by the time lag in processing unpaid checks. For most consumers who grew up before the technological advances of the last decade, float was the time between when you could write a check, and when the debt would hit your account.

Yes, consumers are supposed to have the funds in hand so that their checks clear, but people living paycheck to paycheck, or simply trying to match the in-flows and out-flows, could be in a situation where checks clear much faster than they expect.

The last big change in this direction came in 2004, with a rule known as “Check 21″ for the Check Clearing Act for the 21st Century, and which was designed to make the check-payment system more efficient by making it easier for banks to process checks electronically. With more than 35 billion paper checks being written each year, Check 21 made it so that the physical checks did not have to be moved from one bank to the next.

For many banking customers, the real impact of Check 21 was felt in the statement, where they stopped getting canceled checks returned and instead received “substitute checks” that amount to a picture — usually smaller than an actual check — of the written document. The next step in the evolution towards a cashless society — or at least one without checks — came with the implementation of something called the “accounts receivable conversion.” This system made it so that if you pay a bill by check, the recipient can convert it into an electronic payment; the check does not necessarily show up in the next monthly statement, replaced by an entry showing the amount and the debit.

All of which leads to the latest change, one virtually ignored by the media, that retailers were able to start implementing Friday.

Today’s Avg. Checking Account Rate Type Current APR
Interest Checking 1.43% 1.45%
Checking Account Rate Provided by Bankrate.com
Compare Rates in Your AreaIt’s called “back office conversion,” and it’s similar to the accounts receivable method, except it now can apply to paying by check in person at a store. In the past, stores would accept checks, take them into the back office (hence the name) and make a daily trip to the bank (or use a courier service) to get them cleared. Now, the checks can be converted in the back office into electronic payments.

“It is not an instantaneous payment,” says Paul M. Connolly, first vice president and chief operating officer for the Federal Reserve Bank of Boston, “but your payment will reach the bank during the day or at day’s end, and certainly overnight.”

Translation: Goodbye float. No more making a purchase on Saturday by check, and expecting that the check will not clear before Monday or Tuesday at the earliest.

Patterns Changing

As with the previous changes to checks used to pay bills, consumers will get a record of the check on their bank statement and they can get a copy of the check that will have legal standing if it needs to be used for tax or other purposes.

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The original check is likely to be destroyed after 30 or 60 days. (Many checks already are incinerated or shredded in this fashion, but there is no change in the rules that financial institutions must keep a clear representation of your check for seven years.)

Connolly believes consumers aren’t hearing much about back-office conversion because it doesn’t alter consumer behavior; it simply impacts their ever-shrinking ability to play the float. Moreover, retailers will decide just how widespread the change is; given the cost and time savings most retailers would expect from the change, Connolly figures that many retailers, especially the big ones, will make the move.

The good news for consumers is that no one expects them to pay additional fees for writing checks, at least not yet. If anything, by reducing the cost and effort for a retailer it may encourage more of them to accept checks; all of the previous reduction in float times have been shown to reduce the number of checks written against insufficient funds, a very real benefit to both sides of any transaction.

Check-writing patterns have been changing in recent years, with consumers becoming much more accepting of debit and credit cards, online payment systems, electronic bank access and more. Connolly thinks that trend may be helped along by back-office conversion.

“If I go into the same store once a week every week of my life and I start to notice that those checks never come back to me, and that they clear almost as soon as I write them, maybe after some months or years I will say ‘Why am I writing this check,’” Connolly says. “Maybe this will bring some consumers to the conclusion that a lot of people have already reached, that their debit or credit card does the job just as well — or better — than their traditional check.” Anyone who has used the float as a form of short-term financing should instead be looking for overdraft protection or should curtail spending and step away from the edge of a financial precipice to avoid the heavy fees banks now charge for rubber checks.

“Float has definitely been in retreat, and this will push that process along a little further,” says Connolly. “It was always risky, but now people should know that they just can’t count on any real float time at all.”

Chuck Jaffe is a senior MarketWatch columnist.

Channel your second-grade teacher and playfully give out gold-star stickers to all the people in your life — young and old — who somehow make your day a little easier.

If you know someone is going out to dinner to celebrate a special occasion, call the restaurant in advance and say you’ll pick up the cost of her wine or dessert.

When someone is moving to a new city, supply friends and family members with stamped, preaddressed postcards. (Hand them out at the going-away party.) By the time the family pulls into the new driveway, there will be warm wishes awaiting them.

When you run across a newspaper or magazine article you think someone you know would find interesting, take a moment to clip it out. Attach a Post-it note that reads “Thought you’d enjoy” and drop it in the mail. This takes less time than writing a letter, but the gesture still shows the other person you’re thinking about her. Laura Noss, who owns a public-relations firm for nonprofits in San Francisco, says her father, who lives in Cleveland, does just that. “It means so much that when he’s reading something, he’ll rip it out, fold it, attach a message, put the postage on it, and send it to me,” she says. “I save almost all of them.”

Similarly, when a young person in your hometown does something to merit a mention in the newspaper (the high school quarterback saves the big game in overtime or your neighbor gets elected student-body president), clip out the photo and article and send it to the person’s family. Chances are, they’ll want to collect every copy they can. (One notable exception: the police blotter.)

If you travel a lot on business, record yourself reading your children’s favorite bedtime stories; they can listen to your voice as they flip through the book. Finish each night’s reading with a countdown of the days until you’re back home with them.

Every day for a year, jot down one thing you love about your child/husband/friend (he has a crooked smile; she snorts when she laughs). At the end of the year, give the person your one-of-a-kind, 365-item list.

When you develop photos from a vacation or a major life event that an elderly relative missed, get an extra set of prints and send them to her.

When guests are leaving, escort them to their car, not just to the front door. If you’re driving someone home, wait until she’s inside the house before you pull away.

Hide messages for your family to find throughout the day, like “Thanks for doing a load!” in the dryer, or a silly joke in your child’s lunch box.

If someone you know is going through a difficult time, call to let her know that you’re thinking about her, but make sure your message doesn’t leave her with a sense of obligation: “Just wanted you to know I’m thinking about you, but don’t worry about calling me back.” When a friend was being treated for breast cancer in a hospital outside her home state, Sandy Donaldson, a community-relations coordinator in Newport News, Virginia, rented her friend a beeper and entered the names of the woman’s friends in its contact list. Whenever her friend got beeped, she could look and see who was sending kind thoughts her way. “The only rule was that she was not allowed to call anyone back,” says Donaldson, who didn’t want her friend to feel any more burdened during her illness.

When a neighbor is grieving, leave a basket on her front porch, filled with blank thank-you cards she can send to people who have brought flowers or made donations.

When stocking up on school supplies, pick up a few extras and give them to your child’s teacher to pass on to students whose families might not be able to afford them.

Donate two tickets to a major sporting or theatrical event to an organization like Big Brothers Big Sisters. That way, a Big Sis can take her Little Sis to something out of the ordinary that she otherwise might not be able to afford.