As more people start producing checks on their computer printers at home, some are making it impossible for their banks to process the items with high-speed equipment, industry leaders warn.
The problem: The equipment cannot scan a check if it does not bear special magnetic inks. Checks that come from commercial printers have these inks, but many of the do-it-yourself ones do not. Such inks toners, in printer parlance are available for use in personal printers, but the vendors promoting check-printing software often fail to mention the issue or play it down, the American Bankers Association said in a press release last week.
As a result, a growing numbers of customers mostly individuals and small businesses are likely to encounter delays in the clearing and posting of their checks, the ABA said. This could lead to overdrafts or other financial complications for the customers, as well as higher processing costs and customer-relations hassles for the banks, said the trade group, which is urging bankers to educate their clients before these problems arise.
Consumers, if they are going to print their own checks, need to be aware of banks standards and inquire into getting the correct toner for their printer, said Richard Clausen, the senior vice president of liability risk management at Bank of America Corp. and a member of the ABAs deposit account fraud committee.
Banks use machines with magnetic ink character recognition technology to read account and bank information from checks and process them automatically. Checks travel through the machines at speeds of more than 60 miles per hour.
We want to make sure that customers understand that the financial industry is still highly reliant on MICR ink, said Ed Potter, the vice president of operating services at J.P. Morgan Chase & Co. and a member of the ABA committee. MICR has been around since the 1950s, and the finance industry has been refining the process of clearing checks in an infrastructure that is based entirely on reading the MICR line.
Homemade checks that dont use magnetic ink thwart the whole process, he said.
If the equipment cannot read a check, a lengthy process begins in the back office, Mr. Potter said: The check is examined by bank employees for possible fraud, and if it is valid, its information must be entered into the banks computer system manually. It can take several hours to a day longer to process such a check, he said.
Mr. Clausen said dozens of companies, many of them small, currently offer check-printing software over the Internet. The software provides check layouts, which the customer then prints onto blank check stock, he said.
Though the homemade checks are valid even if magnetic ink is not used and banks generally do not charge extra to process these items banks cannot handle the checks in a normal fashion, and it takes a long time for the bank to handle, Mr. Clausen said.
James Regan, the vice president of deposit accounting operations at Bank of New York Co. and a member of the ABA committee, said bank customers who do not use MICR ink, which is easy to obtain, seemed very surprised to find that MICR has to be used in order for the machines to process the checks automatically. Customers are telling us that nothing in their software package said anything about using magnetic ink.
In the last couple of months Bank of New York has processed at least a dozen checks per month printed with nonmagnetic ink, versus an average of two to three per month previously, he said.
As more and more people start using the Internet, its starting to grow, Mr. Regan said.