Understanding Check 21


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With the holiday shopping season approaching, consumers who plan to write checks to pay for purchases are urged to be aware of a new law. The law, which went into effect October 2004, shortens the float time on the checks you write. The Check Clearing for the 21st Century Act, also known is Check 21, shortens the grace period between the time your check is written and when the money is taken from your account. This means if you write a check at a retail establishment today, chance are the check will be processed electronically and the money could be debited from your bank account on the same day. No more two to three day float time! Under this new law consumer advocates predict that consumers will lose millions of dollars in bounced check fees.

The Check 21 law was designed to enable banks to replace the paper checks they receive with electronic images. Banks can now use electronic-check processing to reduce, by an estimated $2 billion a year, the cost of moving, clearing and returning paper checks.

What does this mean for consumers? The BBB urges consumers to be aware of the following:

  • Before you write a check, make sure that your checking account has enough money in it to cover the check. Checks you write now will clear sooner – which means money may be deducted from your checking account faster than you may anticipate.

  • You may not gain access to the funds from checks you deposit any sooner than before. While the new law speeds up how quickly funds can be taken out of your checking account, it does not speed up the length of time in which your bank must make funds available from the checks that you deposit. The new law does not shorten check hold times.

  • You may also start to see fewer and fewer of your original checks in your bank statements and more paper substitutes. Many consumers already receive digital images of their checks, a list of their paid checks, or a combination of these items. According to the Federal Reserve Board, Check 21 will have little to no effect on these practices. However, if you do get your canceled checks back in your regular bank 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. A substitute check is a special paper copy of the front and back of an original check. The substitute check is a legal copy of your check. You can use it the same way you would use the original check.

  • Before Check 21, your own bank decided how long to keep your original checks, if they were not returned with your statement. Under Check 21, the bank of the person you wrote the check to may decide when to destroy your check. Neither Check 21 nor any other law requires a bank to keep your original check for any specific period of time.
For additional information on Check 21 visit the Federal Reserve Board’s Web site at www.federalreserve.gov.
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