Orange County Register: Checks and fewer balances

[question everything]

Wednesday, October 13, 2004

Checks and fewer balances

New law will speed up banks' move into electronic age but raises odds of fraud, bounced checks.

By JAN NORMAN
The Orange County Register

While reviewing canceled checks that came with a bank statement, David Cline, president of Balboa Instruments in Tustin, once discovered his signature had been forged on copies of the company's payroll checks.

His bank covered the loss.

But if a similar forgery were to occur after Oct. 28, Cline might not uncover the crime, let alone recover the money. That's the date that the federal Check Clearing for the 21st Century Act – Check 21 for short – goes into effect.

The new law will expedite banks' move into the electronic age. It will speed the transfer of money between customers and companies and save money for businesses and banks. But it also forces companies to change some procedures and creates more opportunities for fraud. "Banks will no longer be the gatekeepers," says Edward Lieber, managing partner of Elliott, Lewis, Lieber & Stumpf, a Santa Ana accounting firm. "The responsibility is on the individual or business to manage their checking accounts."

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Starting at the end of the month, banks can create an electronic image of each check to simplify transfers among financial institutions. The original check can then be destroyed. If a paper copy is needed, a printed copy of the electronic image – a "substitute check" – is now legally acceptable... For businesses the law raises several issues. First, Lieber says, traditional ways of spotting check fraud will be less effective. Second, the new system will make it possible to debit a check twice. And third, the float will become as passé as audiocassettes.

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Withdrawals speed up underCheck21, but deposits don't. Banks are still allowed to hold a check for several days before clearing it, an inequity that angers consumer advocates... Yet some of the ways to spot counterfeit or altered checks, such as water marks or holograms in the paper, cannot be used with copies. Also, forged signatures are difficult to verify and may not hold up in court, Lieber says.

More..

http://www.ocregister.com/ocr/2004/10/13/sections/business/business/article_273514.php