Float Time Defined
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 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. 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. 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. Before the implementation of the Check Clearing for the 21st Century Act (Check 21), the average float time was two to four days.
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 Scotiabank — 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.
Related terms:
Availability Float
Availability float refers to the time period between when a deposit is made and when funds become available in an account. read more
Bounced Check
A bounced check is slang for a check that cannot be processed because the writer has insufficient funds. read more
Check
A check is a written, dated, and signed instrument that contains an unconditional order directing a bank to pay a definite sum of money to a payee. read more
Check Clearing for the 21st Century Act (Check 21)
The Check Clearing for the 21st Century Act (Check 21) is a federal law that gives banks and other organizations the ability to create electronic image copies of consumers' checks. read more
Checking Account
A checking account is a deposit account held at a financial institution that allows deposits and withdrawals. Checking accounts are very liquid and can be accessed using checks, automated teller machines, and electronic debits, among other methods. read more
Clearing
Clearing is when an organization acts as an intermediary to reconcile orders between transacting parties. A clearing bank approves checks for payments. read more
Creditor
A creditor is an entity that extends credit by giving another entity permission to borrow money if it is paid back at a later date. read more
Credit Union
A credit union is a member-owned financial cooperative that is created and operated by members and shares profits with owners. read more
Email Money Transfer (EMT)
An email money transfer (EMT) is a banking service that allows users to transfer funds between accounts, using email and their online banking service. read more