Check 21

Check 21 is a new Federal law that changes the way banks process paper checks, substantially speeding a check’s clearance through the system. Check 21 is designed to enable banks to handle more checks electronically, which should 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. The transportation of the actual check can be inefficient and costly. Check 21 became effective on October 28, 2004 to better manage this process. Check 21 predominantly covers the regulation of electronic communications between banks.

The Check Clearing for the 21st Century Act, or Check 21, was an act of American legislature that was passed on October 28, 2003. Check 21 changed the way in which payments by check are processed in the United States, and streamlined communication between banks. Instead of physically moving paper checks from one bank to another, Check 21 allows banks to process more checks electronically. Banks can make a electronic copy of the front and back of the check along with the associated payment information and transmit this information electronically. Now, instead of having to send a physical check to clear it, a bank can simply send an electronic image. Once the receiving bank confirms that the check is valid via the electronic transfer they can instantly transfer the appropriate funds. Using Check 21, a bank can clear a check in as little as 24 hours, rather than taking several days to do it.

If person wanted a copy of his or her canceled check, they can request a substitute check from their bank. The substitute check is an authorized electronic copy of the original check. 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. The substitute check is considered the legal equivalent of the original check and should contain an image of the front and back of the original check, your account number and bank routing number.

The rate of check processing has already increased in response to check-system improvements. Check-processing speeds should continue to increase, over time, as banks make further operational changes in response to Check 21. That means money may be deducted from your checking account faster. For those bank customers that like to play with the float time, it is becoming more costly to play with this time and it is becoming evident that the wise choice is to make sure your checking account has enough money in it to cover the checks written.

This entry was posted on Sunday, October 12th, 2008 at 11:40 am and is filed under Banking and CD Guide. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.