Check 21 Overview
The Check Clearing for the 21st Century Act (Check 21) was signed into law on October
28, 2003, and became effective on October 28, 2004. Check 21 is designed to foster
innovation in the payments system and to enhance its efficiency by reducing some
of the legal impediments to check truncation. The law facilitates check truncation
by creating a new negotiable instrument called a substitute check, which permits
banks to truncate original checks, to process check information electronically,
and to deliver substitute checks to banks that want to continue receiving paper
checks. A substitute check is the legal equivalent of the original check and includes
all the information contained on the original check. The law does not require banks
to accept checks in electronic form nor does it require banks to use the new authority
granted by the Act to create substitute checks.
The Federal Reserve Board has released the final rule to implement Check 21, including
the model disclosure language for depository institutions to use in notifying consumers
of their rights under the law.
How does Check 21 affect you?
Because of Check 21 and other check-system improvements, your checks may be processed
faster--which means money may be deducted from your checking account faster. Before
you write a check, make sure that your checking account has enough money in it to
cover the check.
You may be one of the majority of consumers who do not receive their canceled checks
with their account statements. Instead, you may receive "pictures" (known as digital
images) of your checks, a list of your paid checks, or a combination of these items.
Check 21 will have little or no effect on these practices.
On the other hand, if you do get your canceled checks back in your regular account
statements, you may notice some changes under Check 21. For example, your bank may
start sending you a combination of original checks and substitute checks in your
account statements. You may use a canceled substitute check as proof of payment
just as you would use a canceled original check.
The account agreement you have with your bank governs whether you receive canceled
checks with your account statements. If you currently get canceled checks back with
your statements, you will continue to receive your checks unless your bank notifies
you that it is changing your account agreement.
You may receive substitute checks in other limited circumstances. For example, your
bank may give you a substitute check if you ask to have a particular canceled check
back to prove a payment. Also, your bank might provide a substitute check to you
when returning a "bounced" check that you deposited into your account.
By law, your bank may not pay a check from your account unless you authorized that
payment. In other words, you are protected from having your bank pay the same check
from your account more than once or from having your bank pay the wrong amount for
a check. Check 21 does not change these protections. However, Check 21 does give
you special rights if you receive a substitute check from your bank. This guide
explains your rights regarding substitute checks. For your rights in other situations,
contact your bank.
What is a substitute check?
A substitute check is a special paper copy of the front and back of an original
check. The substitute check may be slightly larger than the original check. Substitute
checks are specially formatted so they can be processed as if they were original
checks. The front of a substitute check should state: "This is a legal copy of your
check. You can use it the same way you would use the original check."
Why do banks create substitute checks?
Some banks find that exchanging electronic images of checks with other banks is
faster and more efficient than physically transporting paper checks. In certain
circumstances, however, banks may need to use a paper check. To address this need,
Check 21 allows a bank to create and send a substitute check that is made from an
electronic image of the original check.
The content of this article was received courtesy of the Federal Reserve System
web site