The Check Clearing for the 21st Century Act (Check 21) went into effect on October 28, 2004. As a result of the new law, money will be drafted from your account immediately when you write a check. The law allows retailers to scan your check through a machine that deducts the cash within minutes. It is essentially the end of the paper check system, as well, because the check will eventually be destroyed. There will be an image of the check online and that will serve as proof if you need it. Everything is becoming electronic, and a bank will know if a check is good right away. The main effects of Check 21 are:
- You will not be able to get your original paper checks back because your bank will no longer have them.
- Checks you write will clear sooner, increasing the risk that a check will bounce if funds are not in the account when you write the check. Do not write a check unless the funds are already in the account to cover it.
- You may not get access to the funds from checks you deposit any sooner, because the new law does not shorten check hold times.
- Banks will save money on processing checks, but banks are not required to share these savings with consumers.
- Different kinds of copies of a check will have different rights attached. Check 21 creates a new kind of paper copy of an electronic image of a check. This special kind of copy is called a “substitute check.” Only a substitute check can be the legal equivalent of the original check, and only a substitute check triggers your right to recredit of disputed funds. A regular copy of a check does not carry these same protections. If you ask for a copy of a check, your bank may send you an ordinary copy instead of this special kind of copy which triggers legal rights and protections unless you ask for a substitute check.
- A bank other than your bank will have your original check and will decide whether to destroy it. Neither Check 21 nor any other law requires a bank to keep your original check for any period of time. Before Check 21, your own bank decided how long to keep your original checks, if you did not get them returned with your statement. Under Check 21, the bank of the person to whom you wrote the check may decide when to destroy your check.
- Consumers will get new rights for some electronically processed checks, but not for others. When a so-called “substitute check” is provided to a consumer, Check 21 gives the consumer a right to have funds of up to $2,500 recredited to the consumer’s account in 10 business days if the check is paid twice, paid for the wrong amount, or otherwise paid in error. The regulations restrict the right of recredit only to checks where the consumer was provided with a substitute check. If a check is processed electronically by all the banks it is routed through without the use of a substitute check and the consumer is not provided with a substitute check, then the check remains under state check law. In that case, the consumer does not receive a 10 day right of recredit even if the electronic image of the check is paid twice, paid for the wrong amount, or if both the electronic image and the paper check are paid.
- Consumers who want to maximize their consumer rights should ask for return of “substitute check” with their checking account statements.
- Only the special “substitute check” can be legally equivalent to the original check to prove payment. The copies that a bank sends to consumers under a so-called “voluntary truncation” agreement, where the consumer agrees not to get the checks back, do not prove that a payment has been made, and do not trigger your Check 21 recredit right.