Here’s a common scenario: rent is due Friday, but the renter’s paycheck won’t be credited to his account until Monday. In the meantime, he’s got $20 in his account. Still, the renter writes the check Friday, praying it’s not deposited until his paycheck becomes available. This is called “floating” a check, and for decades it’s allowed well-intentioned consumers who live paycheck-to-paycheck to theoretically “pay” their bills on time.
This process is also known as “check-kiting.” Legally considered fraud, it’s in violation of the law in every state. In fact, financial institutions and creditors have the legal right to prosecute offenders. However, few do–unless it’s apparent that the bad check was written with criminal intent.
Instead, “bounced check fees” are charged, which are now at all-time high rates. Their incidence is also at an all-time high, thanks to the new “Check 21” law, passed in November of 2004. Check 21 allows creditors immediate, electronic access to check funds. Gone is the Friday to Monday window. A check written on Friday at 2:00 can be processed and cleared–or bounced–at 2:02.
Unfortunately, this favor of “instant access” is not granted to consumers. Banks may opt to hold deposited funds like paychecks for periods of one to five business days. The result is that lower-income Americans get squeezed on both sides: quicker withdrawals without the quicker deposits to balance it out.
Few protections exist for these lower-income consumers. Bounced check “insurance” is available through some banks, via back-up funds drawn from savings or same-bank issued credit cards. Fortunately for consumers, some states, among them Nevada, have recently passed legislation offering some consumer protections with regard to same-day deposits and withdrawals.
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