New system can process checks instantly

Only two banks in Minnesota have started using the system so far. TCF is waiting to make changes.

Jared Roddy

A new law that went into effect last week nearly eliminated the delay between writing a check and removal of funds from the account.

“Check Cashing for the 21st Century,” or “Check 21,” allows banks to make digital images of checks and transmit them electronically across the country.

The change could hit younger individuals and people who live paycheck-to-paycheck especially hard, said Patti Lorenzen, media representative for the Minneapolis Federal Reserve Bank.

“If the check were local, it might take a couple of days to clear,” Lorenzen said. “Now the same day that it comes in, the funds can be taken out.”

Deborah Hurston, director of communications at the Minnesota Bankers Association, said making money off fees was not the intention of the new law.

“This was actually designed to protect the payment system,” Hurston said. “Immediately after 9-11, all transportation was stopped. That meant that literally billions and billions of dollars were held hostage.”

Hurston said that by taking the physical check out of the equation, the Federal Reserve makes sure the payment system cannot be interrupted.

Only two bank chains in Minnesota have installed the technology to make and transmit the digital, or “substitute,” checks. Wells Fargo and US Bank, both national chains, began using the new system on Oct. 28.

Other banks, such as TCF Bank, said they are adopting a wait-and-see strategy.

“We can accept (substitute checks) now,” said TCF corporate communications director Jason Korstange. “We’ll look at it and make that decision at a later time.”

Korstange said TCF customers can expect their checks to clear one day sooner than before.

Some students said they worry that the “outrageous” overdraft fees banks charge could seriously hurt them financially.

“Overdraft fees are way too much,” biology sophomore Sythong Somsawat said. “Sometimes things just happen, and they won’t give you a refund.”

Korstange said TCF had no plans – and he had seen no numbers – indicating an increase in revenue from overdraft fees.

“This has been pretty well advertised,” he said. “We hope the consumer has been listening.”

Hurston said people who write checks without necessary funds in their accounts need to become more aware of how they manage their funds.

Fifth-year biology student Jessica Oetting agreed.

“For students who play that game, it could hurt,” Oetting said. “But they need to learn how to deal with their finances.”

Fears of counterfeiting have also increased, according to an Aug. 4 report that Unisys Corp. issued. It outlined the dangers of “Check 21.”

Frank W. Abagnale, the counterfeiting expert whose exploits formed the basis of the movie “Catch Me if You Can,” wrote portions of the report. He wrote that incidents of fraud could increase with “Check 21.”

“Placing both check images and monthly statements online offers fraudsters intelligence on both the visual aspects of the checks and the behavioral history of the account … large-scale compromise of customer credentials is a very real possibility,” Abagnale wrote in the report.

Hurston said the security systems behind “Check 21” were devised to protect consumers. But she said she did not know any details.

The thing to remember, Hurston said, was the reasoning behind the law.

“This is just another way to protect consumers,” she said, “and to protect the U.S.”