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Check 21: There Is Still Time to Act
Check 21: There Is Still Time to Act
By John M. Floyd
Oct. 28 has come and gone, which means Check 21 is now being implemented in many banks. Although your customers’ checks are starting to move around the country more rapidly, if you act now, there is still time to put processes in place to make Check 21’s gradual implementation go smoothly!
How is Check 21 affecting your customers? Your customers may be seeing an increase in NSF fees because Check 21 is reducing the clearing process. The implementation of the substitute check process has been gradual – before you know it, the technology will be in place, and there will be a surge of substitute checks. 

Since substitute checks will soon become the norm, your customers – if not aware – may damage their credit because they are used to having a “float.” Your customers may also be faced with the embarrassment of returning to a retailer to make good on a bad check. 

How is Check 21 affecting your bank? If you haven’t already, you may begin to see a decrease in customer satisfaction as more checks are returned and your customers become frustrated as they are imposed with additional fees. A second impact on your institution is the possibility of increased traffic volumes in both your branch locations and call centers. And this traffic might not be the kind you want.

 What can you do to help your customers? Communication and education are two suggestions. The more you communicate with your customers about Check 21 and the better educated they become, the smoother the transition will be.

Another suggestion you might consider is implementing an overdraft privilege program. By implementing an overdraft privilege program now, you will be prepared to better serve your customers. As more and more institutions implement the technology to support Check 21, an overdraft privilege program will prevent them from incurring excessive fees, adding to your overall customer retention.

What can your bank do to deal with the influx of NSFs? An overdraft privilege program will help you here, too. The right program can improve your operational efficiency. An influx in NSFs makes it difficult to handle each transaction individually. With an automated system in place, if an NSF item falls within your customer’s overdraft privilege limit, then the item will automatically go right through your system. That helps your back office handle the extra workload that might become overwhelming.

Plus, an added benefit to your bank is increased non-interest income, possibly as much as 50 to 300 percent.

Overdraft privilege and regulations: Over the past year, some bankers have looked apprehensively at overdraft programs due to the Federal Reserve’s investigation. However, in May 2004 the Federal Reserve stated it would not propose any substantive restrictions and issued best practices for overdraft programs.

But if you still have concerns about the stance the Federal Reserve holds regarding overdraft privilege programs, you can now breathe a sigh of relief. Recently, the Fed also announced that overdraft programs should not be covered under the truth-in-lending laws. The Federal Reserve has published a brochure regarding overdraft programs, which is found at  
What should you look for in an overdraft privilege program? An overdraft privilege program, such as that offered by JMFA, should be: 100 percent compliant with federal and state regulations; 100 percent compatible with your core processor; committed to educating your customer base on its use and limits; and dedicated to onsite, expert employee training and follow-up.

This is a true win-win-win. Your customers will be saved fees and embarrassment, the merchant will not be forced to handle as many returned items and your bank will have created customer loyalty while increasing your non-interest income by 50 to 300 percent.    

John M. Floyd is chairman and CEO of John M. Floyd & Assoc. The company is a leading provider of overdraft privilege programs serving more than 1,850 financial institutions in 49 states and Central America. To learn more about JMFA, please visit or call (800) 809-2307.

Posted on Friday, December 31, 2004 (Archive on Thursday, March 31, 2005)
Posted by kdroney  Contributed by kdroney


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