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Check debit is updating and speeding handling of paper checks

Posted: Thursday, May 03, 2001

NEW YORK (AP) -- With almost no fanfare, a minor revolution took place in the staid world of checking accounts earlier this year.

A customer wrote a check for $20 at the Prevatte Auto Parts shop in Lumberton, N.C. The check was run through a digital ''reader'' that took the account information off the bottom of the check and routed it over an ATM network. Within seconds, money was transferred from the customer's account to the auto shop's account, and the customer was handed back a canceled check.

It's called a check debit, essentially a marriage of convenience between paper checks and electronic banking. And it's coming soon to banks and retail stores near you.

The new system, called CheckDebit, is being developed by a company called SafeCheck along with 11 big banks and the electronic payment and ATM networks STAR, NYCE and PULSE.

With CheckDebit, banks will physically handle fewer of the estimated 15 billion checks that customers write at retail outlets every year, according to Anne O'Toole, SafeCheck's executive director. Merchants will be more comfortable accepting checks from out-of-towners or infrequent customers because they'll be less worried about fraud, she said.

Consumers, meanwhile, are likely to find checks are accepted more at stores where credit and debit cards have made heavy inroads. Their checks will essentially become single-use debit cards.

''The consumer gets more payment choices,'' said Carol Malicki, chairman of SafeCheck and an officer at First Union Corp. in Charlotte, N.C. ''They can decide which payment method they want to use in which environment.''

The tradeoff for check writers is the loss of ''float,'' the time between the deposit of a paper check in a bank and the time when the money is debited from the checking account. Americans who live paycheck to paycheck take advantage of float when they write a check off an empty account for groceries on Thursday, then deposit their salary checks on Friday to cover that transaction and future spending.

For some consumers, not being able to use float could be a good thing. With traditional check usage, mistiming a deposit can result in a bounced check and all the associated penalty fees and credit rating problems.

O'Toole said retailers aware of customers' dependence on float and can use the new system to verify that an account exists but still send checks electronically for settlement the next day.

Both O'Toole and Malicki said there will be signs advising consumers that their checks are headed for immediate debiting, and store clerks are also to be trained to inform customers of the new system.

BB&T Corp. of Winston-Salem, N.C., already has CheckDebit up and running, and other banks are expected to follow after June 1, O'Toole said. First Union has been testing the check verification system, with CheckDebit to be available later this year.

Other banks behind the project are Bank of America in Charlotte, Citibank and J.P. Morgan Chase in New York, Wells Fargo and Union Bank of California in San Francisco, Union Planters in Memphis and U.S. Bancorp in Minneapolis.

It should be noted that check handling has been moving from paper toward digital for some time.

Some 50,000 merchants already deal with ''electronic checks,'' said Elliott McEntee, president and chief executive of the NACHA Electronic Payments Association in Herndon, Va. NACHA is an automated clearing house that links financial institutions.

With this system, checks are run through digital readers, often part of the cash register. The customer signs a slip similar to a credit-card receipt, and gets the check back. The retailer, in turn, doesn't have to process a paper check. Instead, it clears the transaction electronically through NACHA, the same way it does its credit and debit card transactions. Clearing generally occurs within 48 hours.

''All this is bringing checks into the modern age,'' McEntee said.

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