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Check 21

Author: Air Force Banking Officer SAF/AFAFO
Submitted: Brian

SUMMARY: As of 28 Oct 04 it will no longer be possible to float a check. A new law goes into effect on 28 Oct 04 and all checks will be cleared electronically within minutes... even at night, even on weekends. If payday is Monday and you write a check at the BX on Saturday assuming it won't clear before your paycheck is posted, you will be wrong ---- that check will bounce. And your financial institution will most probably charge you overdraft fees. Be aware of what you are doing and the affect it could have on your credit rating or career. Make sure funds are available before you write a check. Additional detail may be found at:

Questions and Answers About the Check Clearing for the 21st Century Act, "Check 21
Federal Reserve Board Check Clearing for the 21st Century Act

Detailed Article: "Check 21" starting in late October 2004 You've probably bought something in a store with a check even though you don't have the money in your account at the time. You figure you have a few days for the check to clear, and by then the money will be there. It's called the "float." Well, the float is slowly becoming a thing of the past. Because of
a new law going into effect in October, money will be drafted from your account immediately when you write a check. It's called "Check 21," and it allows retailers to scan your check through a machine that deducts the cash within minutes. It's essentially the end of the paper check system, 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. 

What about checks that you deposit? Well, the float is no longer available to you, the customer. But the bank still will hold a deposit for a few days to make sure it clears. It's not fair, but it's the way it's happening. What are the main effects of "Check 21" on consumers? 
-- You won't 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. Don't 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. After 30 months, there must be a study on whether banks are making funds available to consumers earlier than the allowable hold periods. 

--* 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 re-credit 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 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 didn't get them returned with your statement. Under Check 21, the bank of the person you wrote the check to 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 re-credit 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
statute is ambiguous about whether this new right applies when a paper substitute check is used in the processing of the check but is not returned to the consumer. The regulations restrict the right of re-credit 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 re-credit 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 checks" with their checking account statements. Watch out for fees associated with a substitute check-returning account. Look for another bank if your bank charges a high fee to get copies of all your checks as substitute checks. 

-- 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 re-credit right. 

When do these changes go into effect? Check 21 becomes effective October 28, 2004.

Questions and Answers About the Check Clearing for the 21st Century Act, "Check 21"
Federal Reserve Board Check Clearing for the 21st Century Act

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Page added on: 28 September 2004