Check 21 is the shortened name used for the Check Clearing for the 21st Century Act that was passed in 2003 and went into effect in 2004. This act allows banks to electronically process checks without the need for paper processing. This act also allows banks to produce a substitute check from the information if the receiving bank requires paper processing. This act was put into effect to make check processing faster and safer for the banking industry.
The only change a consumer may notice is that they no longer receive their cancelled checks in the mail. Many banks, once they switch to Check 21 only send copies of the checks that have cleared the account that month. No other effects should be felt in the client base of the banks.
Check 21 does not interfere with the amount of time a bank holds the funds of a deposited check. It also has no relevance to the amount of time it takes to receive funds once a check is cashed. Hold times are determined and regulated by a separate banking act. However, it is anticipated that as more banks comply with the Check 21 Act, hold times will decrease because processing has become faster. Check 21 does not mandate that banks use this type of processing. It simply allows them to process checks this way if they desire.
Check 21 should not be confused with Electronic Funds Transfer. Some businesses use checks as a source of electronic fund transfer information. This is done by the merchant, not the bank. EFT’s are governed under different regulations and consumers have different rights and protections than with a check. Merchants must notify consumers that they process their check information as an EFT prior to the transaction. This allows the consumer to select a different form of payment if they wish to complete the transaction.
Check 21 offers consumers extra protection as well as time saving measures for the banking industry. Most consumers are not even aware this change has taken place over the last few years. The banking industry will continue to improve its check processing capabilities due to this act which will result in better service to the customer.