Not so long ago if people knew they were about to be coming into some money yet they needed to pay a bill right now, they could do what is known as “floating” a check. This involves writing a check when there actually isn’t enough money to cover the balance, at least at the time that it is written. Since it normally took the bank a couple of business days to process the funds, most floaters never got into any trouble because their money would be able to go through in time. Of course this meant that they were intentionally writing a check that didn’t have adequate funds before the check cleared the bank and they would deposit the appropriate amount to cover the check. However, things have changed and this little trick is now much riskier with the passage of the Clearing for the 21st Century Act, also known as Check 21. Established in 2004 this legislation allows banks to use a substitute check in the process of clearing the checks they received.

What is a substitute check? It is simply a printed or electronic copy of a check that can be used instead of a real check when it comes to clearing. Through the substitute check banks are able to debit funds immediately, in some cases right when the check is received. The substitute check is an electronic copy of the actual check. The purpose is to use this check to process the check faster. Prior to the passage of Check 21, your check was cleared the old fashioned way with the original being transported to the regional bank and then to the customer’s bank for clearing. The concept of the substitute check being used for rapid clearing is also used by merchants, who can make sure real funds are used at the time merchandise is purchased. Sometimes the merchant may not even keep the check, even if the funds are legitimately there. They simply give it back to their customer so they can have it for their own personal financial records.

So, what happens now if a person still tries to float a check? Sometimes they may get away with it, but it’s not because of the bank. If there is a delay in processing it’s only because the receiver of the check has not yet deposited it into their accounts. And oddly enough even big companies may take a few days before they actually deposit the check. However, check writers should not rely on that, since there’s really no way of knowing when an individual or an enterprise will finally do what is necessary to get that check into their own account.

If a person does float a check and the funds do not come in time, several things can happen. First, the bank can charge overdraft fees on each check that bounces. Although most overdraft fees will be less than $50, it’s still money that could’ve been used for something else such as a grocery bill or a credit card bill. And even small amounts can add up to larger amounts that get very hard to pay.

However, overdraft fees are the least of people’s problems, since they hit only once the check goes through. There will be ramifications from the recipient of the check, who expected the funds to be in place. The bank and the recipient of the check will now add fees and expenses for their cost involved. If the matter is not settled quickly this may very well cause damage to your credit rating. The repercussions can carry dire consequences both financially and legally for the person affected. At worst the original payee will sue to get a judgment forcing the account holder on the bad check to pay what they owe. And, if the bank has a cause for check fraud, a person could actually go to jail.

All in all, when it comes to floating a check it is best that a person doesn’t do it. If a purchase is that urgent it is better to use a credit card, since the whole concept behind that form of payment is to be able to send funds later. Additionally, a person should not expect their overdraft protection to cover their fees since each time this is used, a fee is charged. Most of all a person needs to learn in advance how to properly budget their money so these types of things don’t happen.

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