"Check 21"

The “Check Clearing for the 21st Century Act” (Check21) was signed by the president October 28, 2003 and becomes effective October 28, 2004.

Today, the vast majority of paper checks written in the United States eventually make their way back to the original bank that they were drawn upon. Paper-based processing has been the standard for many years.

Grounded planes on 9/11 impacted check processing costing the federal government billions and accelerated the need for a dramatic change. The resulting Check 21 legislation allows financial institutions to process with a “substitute check”, based on a digital picture of the original check. That opens the door for faster, more efficient imaged-based processing with less reliance on transportation of physical documents.

Check 21 makes it legal for financial institutions to accept a digital image of your original check. When and if it is converted back to paper it is called a substitute check. A substitute check is a legal equivalent of your original check and will include all the information contained on your original. By October 28, 2004, every financial institution in the country will be required to accept these substitute checks.

HOW DOES THIS AFFECT YOU?

• You may not be able to get your original paper checks back because your Credit Union or Bank may no longer have them. Each financial institution involved in processing a check you write will be allowed to convert your check to a digital image. This means that your check may be converted to a digital image at any point along the way. At the point the check is converted, the original check will no longer be available.
• Virtually end "float", Checks will be processed in a matter of hours, not days. (Technically, checks could zip through the system in a matter of seconds, but the huge volume of checks will slow things down a bit.) The average time between writing a check and it being paid -- a period known as a check’s “float” -- is expected to drop from the two to four days typical now to less than a day. If you’ve gotten into the bad habit of writing checks before a deposit hits your account, you’ll need to knock that off or you’ll wind up incurring a fortune in bounced check fees.
• Make it tougher to “stop” checks. With such fast processing times, it will become harder to prevent a check you’ve written from being paid. If a door-to-door salesperson pressures you into buying magazines, for example, and you later change your mind, you may have just a few hours to enter a stop-payment notice with your bank to keep the check from clearing.

If it becomes necessary to return a check to you for any reason (such as a check you deposited is returned for non-sufficient funds) you may receive a “substitute check” in place of the original check. There are strict regulations in place to require the bank who converted the item from a digital image to a “substitute check” produce an item that meets all requirements for “substitute check”.

Please let us know if you have any questions about this new law and let us know of your concerns so we can pass along recommendations if, and when amendments are considered.

Helpful Resources for More Information:

• Questions and Answers About Check 21