🚀 go-pugleaf

In article <1991May9.183550.13233@millipore.com> blu@millipore.com (Brian Utterback) writes:
>In <12979@exodus.Eng.Sun.COM> eager@ringworld.Eng.Sun.COM writes:
>>
>>I believe that there is a Federal Reserve Bank requirement that all checks 
>>which are processed through the FRB
>>have MICR encoding.  This doesn't mean that your checks won't be valid, it 
>>only means that they will have take a long time to get to your bank.
>
> I am not a lawyer and I don't even play one on TV, but my understanding
> is that they really can't complain.  Or rather they can't make you stop.
> Your bank is required by law to surrender your money to whomever you
> designate when so ordered by you in writing (i.e. a check.)  The form of
> the check is irrelevent.

Well... yes and no (in a practical sense).

As I understand it, the standard definition of a negotiable instrument
(i.e. a check) has not been changed.  You can draft a check on your
account on the back of a napkin, or on the side of a cow, and it's quite
legal.  The recipient can take it to your bank, and your bank is
required to cash it.  Note the phrase "your bank"!

The rules are a bit different if your recipient wishes to cash or
deposit the check at his/her bank (assuming that the two banks are not
one and the same).  As I understand it, no bank other than the one on
which a check is drawn is _required_ to honor a check.  Most will do
so... for their customers... "subject to collection."  That is, they'll
provisionally accept the check, send it to the issuing bank (usually via
the FRB clearing system), accept the money in return, and credit it to
the payee.  This is a courtesy, not a legal requirement, and the payee's
bank is free to put conditions on the provisional acceptance.

Up until a year or so ago, most banks would put a long "hold" on such
funds... they'd tie up the funds for up to 2-3 weeks (for out-of-state
checks) to see if the check were "bounced" by the issuing bank.  This
was stated as a defense against "check kiting"... but a lot of people
felt that banks were simply holding onto funds (and thus gaining the use
of them) well in excess of the actual amount of time needed to clear the
checks.

So... the rules were changed.  New policies were put into place, which
limited the permissible fund-holding time to a small number of days.  In
order to ensure that checks _could_ be cleared through the system within
the time limits, the Federal Reserve Bank tightened up on the rules for
check formats (requiring MICR coding, limiting the space for
endorsements and routing-bank stamps, etc.) so that almost all checks
could be processed through the high-speed check-routing equipment, with
only minimal human intervention.

Now... if you start printing up your own checks, using non-MICR-
compatible fonts or toner, your checks will be kicked out by the FRB
routing machinery.  They'll probably end up being hand-routed to your
bank in an "exceptions" bundle.  Your bank will have to hand-sort them
when returning them to you at the end of the month.  Your bank will
probably become quite upset with you due to the additional hand labor
required.  Your bank will probably contact you and say "We think you
have a batch of nonstandard checks.  Please stop using them, or we will
start charging you a nonstandard-check fee for each check which we must
process manually."

Your bank may well be within its rights to hit you with such a charge...
some banks now have clauses in their customer agreements in which you,
the account holder, agree to use only checks issued by or approved by
the bank.  If you violate this clause, they may charge you extra, or
close your account for having violated your agreement.

How do businesses get away with using "laser-printed" checks?  Simple...
the checks are pre-printed, using MICR-compliant fonts and toner, with
all of the necessary routing codes (and, usually, sequential check
numbers as well).  The "blanks" are then laser-printed on demand with
the payee name, amount, and frequently a digitized signature.  Except in
unusual cases (very-high-volume check production using special MICR-
compatible toner), the MICR characters are _not_ added during the
laser-printing stage.

Disclaimer:  all of the above is based on my reading of various bits of
information;  it may be incorrect in places.

-- 
Dave Platt                                                VOICE: (415) 813-8917
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