Check 21
This information was compiled as of September 30, 2005. Please be certain to verify this information. It is solely for reference purposes, and is not intended to constitute or operate as a substitute for obtaining legal counsel.
Effective October 28, 2004, a new federal law known as "Check 21" (the Check Clearing for the 21st Century Act) has the potential to affect millions of American consumers. The law is designed to speed check clearing and permit banks to process checks without physically moving them. The result will be that processing time for checks (the period often known as the "float") will be cut from days to minutes.
Under Check 21, banks are permitted to transmit electronic images instead of actual checks. In cases where the receiving bank cannot receive an image, or when the customer wants the cancelled checks back, the bank can create a "substitute check," having the same look and feel as the regular check. The result is likely to be an increased likelihood of fraud and forgery, more errors related to the same check being run through an account multiple times, and a dramatic increase in the number of bounced checks and consequential bank fees. Banks are expected to begin phasing in the new procedures in November of 2004.
What can consumers do to avoid being harmed by Check 21? Here are some simple steps:
(1) Accept that the float is forever gone. If you are one of those people who wrote checks on Wednesday in anticipation of Friday's paycheck, stop immediately. If the money isn't in the account at the time the check is written, don't write it! Assume processing will be instantaneous.
(2) Cut back on your use of checks. With the array of payment options available to consumers, there are few instances in which checks really are necessary. Consider making purchases with credit (not debit) cards, particularly large purchases.
(3) Recognize that in order to stop payment on a check, you will need to act very quickly.
(4) Review your checking account statement very carefully each month to ensure that it is accurate.