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Checks Are Changing - Consumers and Check 21

More Information About The Check Clearing Act For The 21st Century
from the ABA Education Foundation

In October 2003, the Check Clearing for the 21st Century Act became law. Now known simply as Check 21, the legislation's goals include: "to improve the overall efficiency of the nation's payments system."

Today, most checks must be physically transported – whether across town or across the country – before they can be cleared. This is expensive and time-consuming. Check 21 provides a new option: legal acceptance of paper reproductions of original checks. This reproduction is called a "substitute check" and is produced from a digital image of the original check.

What does Check 21 do?

By Oct. 28, 2004, every bank will be required to accept substitute checks, just as they currently accept paper checks. If you receive your canceled checks or electronic images of your canceled checks with your account statement, you will begin seeing substitute checks after that date. A substitute check is the legal equivalent of the original check and will include all the information contained on the original.

Check 21 includes several safeguards for check-writing consumers. Check 21 helps speed check clearing, so check fraud can be discovered faster. Faster fraud detection means faster resolution for customers. Another safeguard: a bank that creates a substitute check must warrant that it is accurate. The bank also has to make sure that the substitute check is produced in accordance with industry standards for quality.

Other E-Payments

You may already have experienced two other emerging payment practices, each an example of "check conversion," which uses the automated clearinghouse, or ACH, system. 

In the first example, a retailer converts a paper check into an electronic ACH payment on the spot.  In this situation, if you've written a check for a purchase, you are handed the check back immediately after it's converted into an electronic ACH payment at the store or shop.

In the second example, regular billers (telephone, utilities and credit card providers, for example) convert your check payments into ACH payments. The check has been "converted" to an electronic format, and you don't receive a copy of the original.  The payment will be reflected in your bank statement, which becomes the legally accepted proof of your payment.

Keep in mind that both of these example transactions are different from Check 21 and substitute checks.

All of these changes allow for faster payment processing and even better service to the nation's banking customers.

Frequently Asked Questions

What is Check 21?

In a nutshell, Check 21 (the Check Clearing Act for the 21st Century Act) allows banks to replace original paper checks with "substitute checks" that are made from digital copies of the originals. 

Check 21 was created to reduce the time, risks and costs associated with paper check processing.   

Currently, checks travel on trains, planes and automobiles during the clearing process.  When Check 21 becomes effective, banks will be able to send digital images of checks electronically, eliminating the need to physically transport paper checks between banks.  Check 21 will also reduce uncontrollable transportation delays that can be caused by weather or natural disasters. 

What does Check 21 do?

Check 21 will create a more efficient check processing system, without changing the way consumers write checks. It simply requires banks and customers to accept paper copies of their original checks called "substitute checks."

What is a substitute check? 

A substitute check is a paper copy of the digital image of your original check – both front and back, with all endorsements – and is about the size of a business check. Check 21 legislation sets standards for quality and allows for substitute checks to be legal copies of the originals. All banks must accept the substitute check as they would the original document.

How will Check 21 impact me?

If you receive your canceled checks with your statement, you may receive a mix of substitute checks and original checks. If you don't receive your checks back today, you may not notice any change at all. 

Check processing will be faster with the implementation of Check 21. Funds may be removed from your account sooner than in today's system, therefore there will be less "float time." As always, make sure you have enough money in your account before writing a check.

Is Check 21 mandatory?

Check 21 does not mandate electronic processing of digital check images. It simply makes it possible. For banks that choose to process checks manually, a substitute check will be made of the image, which will be processed as if it were the original.

When will Check 21 take effect?

Check 21 was signed into law October 28, 2003 and becomes effective October 28, 2004.

Are substitute checks an acceptable proof of payment?

Yes, everyone must accept substitute checks beginning October 28, 2004. 

What happens to my original check?

After taking a digital image, the bank may destroy your original check. If necessary, a substitute check may be created. Since substitute checks are legal copies of your original check, there is no need to save the original. 

What if I need a copy of my canceled check?

Contact your bank. They will produce a copy for you. Also, many banks offer images of cancelled checks through their online banking service.

How will I benefit with Check 21?

What items are subject to Check 21? 

All checks, including cashier's checks, payroll checks, personal checks and business checks are subject to Check 21. Savings bonds are not checks and therefore are not subject to Check 21. 

How does Check 21 relate to electronic check conversion (e-check)?

Check 21 involves creating digital images of original checks, but they are still processed under the same laws and regulations as paper checks.  

On the other hand, electronic check conversion, or e-check, occurs when a check is converted into an electronic funds transfer. The transaction is then routed through the Automated Clearing House (ACH) network, the same system used by Direct Deposit. 

On your monthly statement, a substitute check will be listed with your other checks; an e-check will be listed with other electronic funds transfers, such as automated debits for health club memberships or a payment setup with a utility company.