Check 21 and You
Check clearing has recently become more efficient. Here's what you should know about it.
Paying By Check In The 21st Century
Starting in October 2004, financial institutions will have an option to eliminate paper checks and convert them to electronic images. If an imaged check needs to be converted back to a paper item during the normal course of clearing, you will receive a "substitute check". Under this new Federal law known as Check 21, a substitute check will be regarded as an original check.
Congress enacted Check 21 to make check processing and payments more efficient. Over 40 billion checks are written annually in the United States, and they follow a long, winding journey starting at the point of sale or as mail-in payments. They are then cashed or deposited at financial institutions, processed by depository banks, sent to paying banks and finally returned to payers. Transporting checks takes time and is expensive.
More Efficiency, Better Service
Check 21 enables banks to take a picture of your check and process it electronically rather than transporting it via truck, train or airplane. Customers whose checks have been processed this way may receive a substitute check in their account statements or when a copy of a check is requested. This new efficiency will have significant benefits:
- Checks will clear faster, making your account's balance more accurate.
- Customers will be able to find and store checks more easily. As check imaging programs become more prevalent, consumers will be able to access images of their checks online and print multiple checks on regular size paper.
- Fraud will be reduced, because as checks clear faster, banks will be able to identify fraudulent items sooner and minimize customer inconvenience.
Here's What to Expect
- Consumers who receive their original checks or image statements can expect to begin receiving substitute checks that bear the legend: "This is a legal copy of your check. You can use it in the same way you would use the original check."
- Substitute checks will accurately represent all the information on the front and back of the original check.
- Substitute checks are the legal equivalent of an original check for all purposes, including any provision of Federal or State law.
- Consumers who believe a substitute check was not properly payable will be entitled to special expedited re-credit protections.
- Banks must investigate any claim and in most instances either resolve the consumer's claim within 10 business days, or provide the consumer with a re-credit of up to $2,500 pending completion of the bank's investigation. Final determination of any such investigation must be made within 45 days.
- This latest evolution of check clearing will significantly reduce the amount of time required to move money out of your account and pay recipients of your checks. This is also known as the "float." You will need to keep closer tabs on your accounts to make sure funds are available on time.
Is the Paper Check Disappearing?
Increasingly, companies that send you bills (e.g. credit card companies, utilities, etc.) are converting your paper check payments into electronic payments. They call this "check conversion" and it is part of the evolution of the U.S. payments system that is becoming more efficient and less prone to fraud.
What happens to your check? It is copied and then destroyed; your proof of payment appears on your bank statement. You are protected by the same consumer protections that apply to your debit cards.
Check conversion can also occur when you make a purchase at a retail store. You pay by check, the retailer converts the check immediately using a secure banking network, and gives the check back to you with your purchase receipt.
It may seem that the days of the paper check are numbered. Perhaps... but the banking system still recognizes that people want to continue using the familiar paper check for the foreseeable future, and are designing a 21st Century system that allows paper to work in the electronic world.
Check 21 promises to usher in a new era of banking efficiency and service. With it, you will be free to manage your accounts and your money using the best of today's technology, with the promise of newer, easier ways to do your banking in the future. The future of electronic banking is coming fast, and we are here to help smooth the way for you!
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