Why are there laws to place such long holds on checks(10days)? Can’t the receiving bank simply call the bank where the check originates from and velidate it themselves?
In: 5
They can. More importantly, they could do that automatically and electronically, and sometimes they do. But that is only part of the problem.
Suppose you have $1000 in your account.
You write three $1000 checks, to Alice, Bob, and Carol.
Alice deposits her check, her bank calls your bank and asks if you have $1000 in your account. You do, they say yes, Alice gets her $1000.
Bob deposits her check, his bank calls your bank and asks if you have $1000 in your account. You do, they say yes, Bob gets his $1000.
Carol deposits her check, her bank calls your bank and asks if you have $1000 in your account. You do, they say yes, Carol gets her $1000.
Later that day, all four banks meet up at the clearing house to settle up. Carol’s bank comes up to yours first, presents the check, and gets $1000. Bob’s bank comes up next, presents the check, and gets declined. Alice’s bank does likewise.
Bob and Alice are now each walking around with $1000 of their banks’ money.
The long holds give banks time to sort all of this out. It gives Bob’s and Carol’s banks time to come back and say, “nope, sorry, we tried, no good, also we’re charging you a $20 fee.” It’s dumb and it’s terrible but it’s the only real way to settle things when checks can take days to clear through the system and turn into actual transfers of real money. Even with electronic check processing — which has been the standard for decades now; they aren’t *actually* meeting up down at the clearinghouse — it usually takes two or three days for the actual funds transfers to occur when using paper checks.
Don’t use checks, checks suck.
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