What is Check 21 and what is its basic purpose?

Check 21 is a federal law that is designed to help make check processing faster and more efficient.  Today, banks often must physically move original paper checks from the bank where the checks are deposited to the bank that pays them.  This transportation can be inefficient and costly.  Instead of physically moving paper checks from one bank to another, Check 21 will allow banks to process more checks electronically and thus more efficiently.  Check 21 became effective on October 28, 2004.

How will Check 21 make check processing more efficient?

Banks can capture a picture of the front and back of the check along with the associated payment information and transmit this information electronically.  If a receiving bank or its customer requires a paper check, the bank can use the electronic picture and payment information to create a paper “substitute check.”  This process enables banks to reduce the cost of physically handling and transporting original paper checks, which can be very expensive.

An example of a substitute check

Front

Back

When Check 21 goes into effect, can I continue to write checks as I do today?

Absolutely.  With Check 21, banks will likely process more checks electronically.  Because of that, your check may reach your bank faster and be paid sooner.  As always, make sure you have enough funds in your account to cover the checks you write at the time that you write them.

What is the difference between a substitute check and programs that convert checks to electronic payments?

When a check is converted to an electronic payment, the check is used only as a source of information to create an electronic funds transfer and is not processed as a check.  You also must receive notice that your check is being processed that way.  That type of transaction will appear on your monthly statement as an electronic transaction.  On the other hand, a substitute check is a paper copy of the front and back of the original check.  It is the legal equivalent of the original check, is processed as a check, and will appear on your monthly statement as a check.

What if there is an error in processing and both the original and substitute check get processed?

To prevent something of that sort from happening, a financial institution that is creating a substitute check must warrant that the original check will not be processed.  Although very improbable, if a situation ever were to arise where both checks were processed, the check’s drafter can notify their financial institution of the error that will then be corrected.

How will Check 21 affect the likelihood of fraud taking place on my account?

In many cases the original check will be removed from the processing flow and human contact with your financial information will then be limited due to the security of electronic channels.  Because of this, it is much less likely that a would-be identity thief will come in contact with your financial information.  Also, because of the increased efficiency of Check 21, you will be able to detect instances of fraud sooner.  That will result in faster fraud resolution.