Explanation of Check 21: Electronic Banking

For many years, when people found out that I was worked at a bank, the first question they would ask is, "Are you a teller?" Times sure have changed. The question I get asked most frequently now is, "What exactly is Check 21?"

Check 21 is a law that was passed on October 28, 2004. The attack on September 11 is mainly what prompted this Act. (All non-military air transportation was grounded for a period of time) Its formal name is Check Clearing for the 21^st Century Act. The main intent of this act is to eliminate check-clearing delays by removing the requirement that checks must be physically transported to the banks that issued them in order to be cleared for payment. You see, most checks are transported by ground and/or air couriers. Depending on how far away the issuing bank is, it could take several days before the check actually clears. This is called float.

Playing the Float Game

Some of you may have figured out that if you write a check on Wednesday, but you don't get paid until Friday, your paycheck may make it to the bank before your check clears. So you're covered, right?

Maybe not. May retailers now have the option to scan your checks and send their electronic images directly to their bank for IMMEDIATE deposit. With this new technology, checks generally clear within 24 hours but beware because it is possible to clear a check on the very same day it is written! In other words, don't write the check if you don't have the money to cover it.

Other Impacts of Check 21

Banks are no longer required to return your original check. In its place, you may receive a substitute check. A substitute check is a legal copy of your original check and for all intent and purpose, it is absolutely no different than your canceled check. You may have already received a substitute check back with your monthly bank statement.

How Fast Are We Moving?

Keep in mind that when the Act went into affect on October 28, 2004, banks were not required to start processing checks electronically. The Act simply gives banks the authority to process them electronically.

Most of the larger banks had some form of an image process in affect even before October 28, 2004. You may have already seen some of the subtle changes. Perhaps you don't get your checks back at all and receive photocopies of them instead. Do you have the option to print out copies of your checks from your online banking account? These are signs that your bank is using some form of image technology.

Are Checks Going to Disappear Entirely?

It is true that check volumes are declining at a rate of as much as 10% per year. (Possibly from an increase in the use of debit cards) However, checks will not disappear. What WILL disappear are canceled checks, as more and more banks move to imaging and electronic presentment.

For more information on Check 21, visit FRB: Frequently Asked Questions about Check 21