What is Check 21 All About?
The Check Clearing of the 21st Century Act by Congress, also known as Check 21, is new federal legislation effective October 28, 2004 that allows banks to use electronic images of checks or substitute checks in place of the original paper checks. The Check 21 bill was enacted in order to reduce costs and improve the banking system.
Under the Check 21 law no bank or other party may insist on receiving the original check. Instead if the original check is requested banks can provide a substitute check as long as that substitute check meets certain conditions as stipulated in the Check 21 act. A substitute check must be a paper reproduction of the original check and meet the following conditions.
* The substitute check must contain an image of the front and back of the original check.
* It must bear an MICR line containing the information appearing on the MICR line of the check.
* The substitute check should also conform and paper stock in dimension and be suitable for automated processing.
The substitute check is considered to be the legal equivalent of the original check for all purposes. Therefore consumer can use a substitute check as proof of payment when documentation of a payment is necessary. Check 21 creates two warranties by the bank issuing a substitute check. The first warranty is a promise that the substitute check is a legal equivalent of the original check. The second warranty promises that the check will not be presented for payment if it has already been paid.
How does check 21 affect the consumer?
1. You may not be able to get you are original check back. Check 21 does not require your bank to keep your original check for a length of time. In fact banks are permitted to destroy the original check as long as they have the capacity to produce a legible copy of the check for seven years.
2. Checks will most likely clear sooner and therefore it is important not to write checks unless the money is already in your account. This is because checks may be processed much more quickly than before.
3. Check 21 gives consumers the right to have funds re credited to their account in the amount of $2,500 within 10 days if a check is paid twice, paid for the wrong amount, or otherwise paid in error. This is important because of the possibility for error when an electronic image of a check is processed instead of the original check. For example, both the original paper check and the electronic check could both be processed resulting in a double payment. In addition it may be very difficult to prove if a check has been altered or forged.
In a nutshell, check 21 means that you will no longer receive your original check back with your monthly bank statements. Instead you will receive an electronic substitute copy. As a result, checks will post and clear electronically and therefore much more quickly than before. Your checks would no longer be transported by mail all over the country.