Waiting for checks to clear

Why, in the age of massive computer networks, does it still take a couple days for a check to clear? Shouldn’t it take like umm about two seconds? I mean obviously all the banks are linked up together or else I couldn’t use my ATM card at another bank’s machine, right?

That’s a good question - I took two money orders to the bank today (Ebay sales, you know) and they told me that to be really sure they were okay I’d have to wait two days and then call the bank. Huh? Money orders are apparently more like checks than I thought!

I remember in Minnesota they have a Check-mate system where you’d type in the check number and for a small % fee, they would confirm that the check would work. I don’t know the details really, I was just a bartender but the machine gave you an authorization number in one minute or so. If they can do it, why can’t a bank? (and that was over 10 years ago!)

Maybe it’s too prevent more stories like this one. It’s the adventures of a guy that decided to stuff in the ATM a “novelty” check saying “You have just won $95093.35”, and what happened when the bank cashed it.

The story of the $95,093.35 check

La franchise ne consiste pas à dire tout ce que l’on pense, mais à penser tout ce que l’on dit.
H. de Livry

You’re complaining about a two day hold? My mom recently cashed out a mutual fund and deposited the $10,000 check into her Washington Mutual checking account while she set up some other investments. They put both a 5 day and 10 day hold on it, debiting her account both times! That made her balance go to -$8,000 and caused her regular checks to bounce. When she complained, they told her it was their policy to put a hold on large checks and on checks deposited through an ATM. They did admit that it caused problems when large checks were deposited through ATMs, but it’s still their policy.

Despite novelty checks, I agree that it’s rediculous to have long holding periods for checks. Two days is bad and five days is really pushing it, but ten days is just heinous.

I think Arnold’s answer is pretty close. In the past, it really took days (sometimes many more than 2) for the check to physically make it back to the bank upon which it was drawn. Absent fraud concerns, it is surely within today’s technology to replace the old physical delivery system with an instantaneous electronic system.

Fraud is real, though. I spoke with two bank clients today, both of which had been the victim of a new kind of modern forger. It’s fairly simple to scan in a check with commonly available equipment and selectively re-edit it to create a near perfect forgery. Combine that with commercially-available check writing software than can duplicate the magnetic coding (those funny looking numbers on the bottom of a check), and it’s real tough to spot a forgery. Remember, only the drawee bank (the bank upon which the check is drawn) has access to the original signature card of the account holder. Allowing time for the drawee bank to get the check and compare signatures catches at least some of the forgeries, and the hold on the funds prevents the forger from disappearing with the proceeds before this signature-checking process takes place.

Believe it or not, by law a check is not a demand on your funds at your bank until it physically gets there. Of course, it doesn’t have to get back to your branch, but someone (or something) somewhere has to see that you’ve written the check. The Check-mate system only verifies that the account has sufficient funds. It does not make a demand on those funds.

So after the payee deposits your check, the payee’s bank quick-quick-quick flies it to one of several check clearinghouses in the United States. The clearinghouse gets it to your bank, and then they “verify” that it’s good. “Verify” is in quotes because what they really do is fail to flag the check if it doesn’t initially appear to be bad. They have the right later to go back to the payee’s bank and say it was bad.

Federal Reserve Bank of New York has a neat little web site dedicated to payment flows under various scenarios. Well worth the visit.

Also, no one will be terribly surprised to learn that one of the outcomes of the system is to debit the payor as soon as possible and credit the payee as late as possible.

Livin’ on Tums, Vitamin E and Rogaine

I still believe the longer they hold it the more money the bank has and the better for them.

It seems logical since my bank is the only one with my signature on file, that the only way they are going to honor a check is to be able to verify the signature. Now, as far as ATM’s, I think basically your PIM number is your signature, that can be handled electronically.
And it also seems to me that the Check-mate systems only verify that the account is valid. I don’t think they can validate the the account balance or put a hold on an amount of the check or anything like that.
If I write a check to merchant, and turn around and move the money to another account in the same bank, the bank will honor my transfer before they will the payment to an external bank. Also, you can move a lot of money around during a banking day and if it all balances in the end, you are ok. So a verifying system really can’t insure much more than it is the right name for the account and that the account is active.

Use to be worse in the 40’s and 50’s people ( cattle buyers for instance) could write a check on the west coast and have 10 days to conjure up the money before it went through in the midwest or the east coast

Heck, banks used to be able to take as long as they wanted to cash out-of-town checks. I remember depositing something back in the early 70s and being told a month later that the funds hadn’t been released.

The laws were changed to prevent that. (That’s why all checks have the “endorse here” area on the back – the banks insisted that the rest of the check remain untouched so their markings could be read easily). Two days is positively speedy.

“East is east and west is west and if you take cranberries and stew them like applesauce they taste much more like prunes than rhubarb does.” – Marx

Read “Sundials” in the new issue of Aboriginal Science Fiction. www.sff.net/people/rothman

Well, using bank float times is an intergral part of small business. Buy something this morning using a check, deliver it and get the payment, deposit that check. You don’t actually have to start with any money in the bank and the amounts can be in the thousands.
That is one of the things that has made UPS popular. Send something COD by UPS, they take a check made out to the company that you purchase from. They already have an arrangement to cover their freight and other charges, so they don’t get in a big rush to deliver the check back to the original company (that’s an extra trip). The check shows up there in a day or so, goes to their bank, then to your bank. At least a week to be able to cover it.

Cecil talks about this a little bit in this column (which took me forever to find because the search engine doesn’t work. Try doing a search for bank!)

Grr hyperlinks grr

They can do it. banks like to keep the interest they make.

Also, cashing an England check in to the US takes 4 to 8 weeks.

Also, most bank fraud is done by bank employees. Ask your bank how much employee fraud they have. :-0