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Check Clearing for the 21st Century Act


Check Clearing for the 21st Century Act


On 28 October 2004, the provisions of the Check Clearing for the 21st Century Act (commonly known as "Check 21") will go into effect. The intent of the act is to eliminate check-clearing delays, primarily by removing the requirement that checks must be physically transported to the banks that issued them in order to be cleared for payment. After 28 October 2004, banks will be allowed to transmit and clear checks by electronic facsimile, a practice that should avoid any clearing delays caused by circumstances that make the physical transportation of checks difficult or impossible (e.g., severe weather, power failures, terrorism).

Of course, one result of faster check processing will be a much shorter gap between the time consumers issue checks for payment and the time the covering funds are withdrawn from their accounts (usually referred to as the "float" time). After Check 21 goes into effect checks may be processed in a matter of hours or even minutes, so consumers can no longer safely assume they have a grace period after writing checks before the funds are actually tapped from their accounts. Check 21 does not, however, change the rules affecting how long banks can hold for clearance checks deposited by their customers. Generally, banks can hold local checks for up to two days, out-of-town checks for up to five days, and other types of checks (e.g., checks over $5,000, checks drawn on new accounts, checks written against consistently overdrawn accounts) for up to thirty days. The bottom line is that consumers will have to be more careful than ever to ensure that adequate funds are always available to cover the checks they write.

Also, under Check 21 banks will no longer be required to return canceled checks to their customers; they may return photographic images of the checks instead. Banks will be able to issue certified photocopies of checks known as "substitute checks," and these copies will have the same evidentiary standing in courts of law as the originals. (Although banks may allow customers to view and print out images of their checks over the Internet, those self-printed copies will not technically be considered substitute checks even though most courts will likely still accept them as evidence of payment.) Check 21 will not explicitly require banks to provide substitute checks, so consumers may want to check with their banks to ensure they receive substitute checks with their statements.

Another provision of Check 21 will speed up resolution of customer claims regarding fraud and error. Currently banks do not need to credit the accounts of customers who complain of error or fraud until their investigations are complete. After Check 21 banks must prove within ten days that disputed transactions were not their fault; if they do not provide such proof, they must credit their customers' accounts for the disputed amounts even if they have not completed their investigations.

Although the Check 21 act goes into effect on 28 October 2004, banks do not have to begin electronically clearing checks on that date ­ Check 21 merely authorizes banks to begin use of electronic check clearing. Most major banks already have imaging technology in place, but not all banks do, and some banks may therefore continue to process checks the "old" way until they upgrade their processing systems.

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