The "floating transaction" game is one that is often played by bank account holders. However, the popularity of the game doesn't necessarily make the behavior right. Due to advances in technology, it is increasingly difficult for you to do a float transaction. Much of the paper trail traditionally involved in banking transactions is being eliminated. Alternatively, merchants are turning to electronic processing devices that completely digitize the purchasing process.
What is It?
A floating transaction is when you write a check using a bank account that has insufficient funds, hoping the account will have sufficient funds by the time the check reaches the bank. When you give the check to the merchant, he is unaware that there are not enough funds in your account to cover the check. He considers your purchase to be a legitimate transaction, and believes he will receive his money. A post-dated check is also a type of floating transaction. However, with a post-dated check, you hope the merchant will honor his promise not to cash the check until the date you specify.
When you apply for a checking account, you are required to sign an account holder agreement. In doing so, you agree to handle your account responsibly. You agree to not write checks if there are insufficient funds in your account. Many banks offer overdraft protection for checking accounts. However, overdraft protection is not a “free pass” to write floating checks.
If you float a check, and the check reaches your bank before your account has sufficient funds, there are consequences. Your float is considered a “bad check.” If you don't have overdraft protection, the floated check is returned to the merchant unpaid. If the merchant receives a returned check, you are charged bounced check fees, in addition to the bank's overdraft fees. If you keep bouncing checks, the bank has the right to close your account due to “abuse.” By law, it is illegal to write a bad check. Doing so can result in fines and prosecution. As a rule of thumb, you should never write a check if you know there are not enough funds in your account to cover the check. This includes post-dated checks, since you can not guarantee that the merchant will honor the date on the check.
Check 21 Legislation
"Check 21" is a federal legislation that impacts all states. The legislation became effective in 2004. Banks are no longer required to transport paper checks before processing. Under Check 21, a merchant can scan a check to convert it into an electronic image. The bank then processes the electronic image, as if it were a paper check. Because of electronic check scanning, it will not take long for your check to reach the bank. This increases the chances of your float turning into a bounced check.
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