by Robert K. Heady
Bank Rate Monitor

       Get ready to see canceled checks disappear from consumer banking starting in October 2004.
       Oh, you'll still be able to write checks to pay your bills, but you won't get your paper checks back with your monthly statement. Instead, the whole checking industry will be working with electronic images of your checks as they are sent from your creditor's bank to your bank.
       It's all part of something called Checking 21, a new law recently signed by President Bush, which shoves banks' checking business into the 21st century's electronic age. I know, you're asking yourself, "How can I function financially if I don't receive my checks back?" Don't worry. The experts I've talked to have reassured me that the system will operate so smoothly "no one will notice the difference."
       Steve Schutze, director of e-strategies for the American Bankers Association in Washington, D.C., said that about 40 percent of U.S. banks have already stopped including canceled checks with monthly statements. Between 3 and 5 percent of additional institutions are dropping the practice every year - because of the rise in debit cards and electronic payments.
       Americans now write about 42 billion checks per year. Because of this, the Federal Reserve now has to use 192 airline flights every day to transport bank customers' checks to 45 different points in the United States. But as the number of checks decrease, the banks' cost per check thereby increases.
       Under the new arrangement, your creditor's bank won't have to ship your real check to your bank via the industry's current cumbersome processing method. Instead, it will be able to merely send an electronic image, whereupon your institution debits your account for the appropriate amount. It'll be up to the bank as to whether it wants to do it that way. If it does, it will save on transportation costs. Customers will be able to obtain a facsimile copy of their check if they so desire.
       "Overall, everyone will benefit from the new setup," promised Schutze. The changeover "won't happen overnight, but it will speed up the whole process. In fact, the money could go from the creditor's bank to your bank within one day," especially if it involves big corporate checks.
       Which raises the question of cutting the amount of "float time" you currently enjoy between the date you mail your check and the date it actually arrives at your bank for posting.
       Schutze said he knows of one bank that was able to extend its closing time from 1:30 to 6 p.m. by eliminating the extra labor necessary to process live checks instead of simply imaging them.
       But what about the industry working with facsimiles instead of the real McCoy? Won't that give rise to fraud and crooks?
       "I can only see this as a disaster waiting to happen," writes reader Mark Stabler, of Dayton, OH. "Suppose I write a check to Joe's lawn mowing service. Joe is too lazy to take my check to the bank. So he electronically withdraws the money from my account. He finds that so easy that he decides to take out another, then another, until my account is drained. I have no way of knowing until it's too late. How does the bank know that these are legitimate withdrawals in the first place? How can I prove that I only wrote one check when that check has been destroyed?"
       "That's up to the bank," answers Schutze. "Double-posting happens, even today. If you run into a problem, contact your bank. Under the new law, banks have the option of destroying checks and creating an image file, although some may keep real, larger checks on file."
       Finally, in case you encounter a problem, such as an incorrect charge, the bank must either:
       1) Produce the original check or a copy that accurately represents the check and demonstrate that the charge is valid, or
       2) Recredit funds on the business day following the business day the bank finds the claim accurate. Otherwise, by the 10th business day it must recredit the first $2,500 and remainder by the 45th business day.
       Editor's Note: Robert K. Heady is the founding publisher of Bank Rate Monitor. He invites Bull & Bear reader mail on consumer money problems and solutions but cannot respond personally to all inquiries. Send e-mail to jrnl8888@aol.com, or write to P.O. Box 14875, North Palm Beach, FL 33408.