New Law May Cause More Bouncing of Rent Checks

In October 2004, the Check Clearing for the 21st Century Act (Check 21) went into effect. This new law permits electronic check processing and allows banks to process checks faster so the party being paid gets its money sooner. Electronic check processing is generally good news for you because residents’ checks will be credited to your account sooner than before. But because it may eliminate the 2 to 3 day float period that many people rely on when they write checks, tenants who may think they still have this float period may inadvertently bounce rent checks.

Before Check 21, when you deposited a resident’s rent check into your bank account, your bank would have to take the actual rent check and send it to the resident’s bank for processing. Once the paying bank got the original check, it would deduct the amount of the check from the resident's account and send the money to the receiving bank, which would then deposit the money into your account. This process usually took between two and three days.

With the new law the banks send everything electronically and money is moved much faster than before. Educate your tenants on these changes and suggest they have sufficient funds in the bank before writing checks. You may want to establish a policy for tenants who bounce checks and impose fees for bounced checks.



Owner Update “Question of The Month”

Q: Does the Check 21 law affect checks from TMHA?

A. The Check Clearing for the 21st Century Act (Check 21) affects all checks written, so yes, it does affect the checks TMHA writes to owners. The article on the flip side of this Update targets how rent checks from tenants could bounce because of the Act, but the same could happen with checks to owners.

The primary thing that seems to have changed is the time between when a check is presented for payment and when it “clears” the banks involved. Before 21, one could fairly reliably present a check, deposit the money to cover it the next day, and be sure that there would be no problem. Electronic check clearing is much faster. In addition, some banks now have a policy of not recording a deposit as being available for use until the day after the deposit is made.

Owner HAP checks are paid from funds sent to the housing authority by HUD at the beginning of each month by ACH (Automated Clearing House) transfer. To avoid any problem with TMHA owner checks being paid, TMHA now calls our bank on the first of each month (or the first business day) to make sure the HUD transfer has been made and is available. TMHA typically prepares the checks before the first, but waits to mail them until the money is there.

In the past year, HUD has been fairly reliable in sending timely ACH transfers, but problems have occurred in the past, particularly around the time of the approval of the Federal budget (October 1). If Congress can’t approve the budget and doesn’t pass stop gap legislation to temporarily fund the government, the funds can get tied up. Remember the Federal government “closing down,” because a budget hadn’t been passed? Such actions can affect us too.


2nd Question: What happens if and owner loses or misplaces a TMHA check?

A. This does occur once in a while. TMHA’s policy is that we will re-issue the check after the 30-day check viability period has passed. Or TMHA will re-issue the lost / misplaced check sooner if the owner is willing to pay the bank fee to place a stop payment on the lost check.

In reality, given the thousands of checks issued by TMHA every year, just a very small percentage ever get really lost. Should this happen, the owner should call us, and TMHA can check on-line up to the previous banking day to see if the check has cleared. If it hasn’t cleared, then we know it’s still out there somewhere, and the owner can make a decision about what action to take – wait and see if it turns up, or re-issue.

There has only been one documented case where a check sent to New York was classified as “stolen” by the Postal Service. A few have been “lost” by the Postal Service. Most often a check gets misplaced or inadvertently discarded by the owner. Several instances have occurred where two people like a husband and wife do banking, and one deposited the check unbeknownst to the other.

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