Float time refers to the amount of time between when an individual writes and submits a check as payment and when the individual's bank receives the instruction to move funds from the account. Before the implementation of the Check Clearing for the 21st Century Act (Check 21), the average float time was two to four days. Now, most checks clear within a day.
Breaking Down Float Time
Before Check 21, individuals would sometimes take advantage of long float times and send out checks despite not having enough money in their accounts to cover the value of the checks. At times, this gave creditors the impressions that payment was available even though the individual did not have sufficient funds.
Individuals who attempt to use a check's float time in the manner previously described should be aware that doing so will likely result in several bounced checks as float times have become dramatically shorter. Transferring checks in electronic format has hastened the clearing process.
Float Time and Check Clearing for the 21st Century Act
The Check Clearing for the 21st Century Act (Check 21) took effect on October 28, 2004. It is federal law and gives banks and other organizations the ability to create electronic image copies of consumers' checks. These images are subsequently sent to the correct financial institutions for processing. From here, the institution will transfer funds from a consumer's account to the receiving party's account. Banks may destroy original paper checks following a predetermined holding period.
In general, the law aims to reduce the costs involved with paper check processing.
E-money transfer (EMT) is one of several new retail banking services to aid in Check 21. EMT allows users to transfer funds among personal accounts, using only email and an online banking service. EMT systems are common at the "big five" banks in Canada—the Royal Bank of Canada, TD Canada Trust, the Canadian Imperial Bank of Commerce, the Bank of Montreal, and the Bank of Nova Scotia—along with other financial institutions.
Float Time and Fraudulent Check Kiting
The act of issuing or altering a check or draft with insufficient funds is fraudulent. It is called check kiting. In January 2018, several deputies from Shelby County Corrections (Memphis, TN) were arrested for a check kiting scheme. Theft charges ranged from $1,000 to $10,000. Specifically, accusations highlight how these suspects obtained close to $7,000 from the Shelby County Credit Union. One deputy would deposit money into the other deputies' accounts at the credit union. Together they would withdrawal funds, and the original depositor would close the account.