The Check Clearing for the 21st Century Act, or Check 21, was the name given to an act of American legislature that was passed on October 28, 2003, and took effect a year later. Check 21 has modified the way in which payments by check are processed in the United States, and streamlined communication between American banks. Banks by which Check 21 is chosen to use, process checks much more rapidly that affects consumers who are in the habit of “floating” when they write checks.
“Floating” refers to writing a check when in the account the funds are insufficient.
Electronic communications between banks
Electronic communications between banks are regulated by check 21. Now, there is no need to send a physical check to clear it, Bank B can now simply send an electronic image. Bank A confirms that the check is valid and then it instantly transfers the funds.
If a bank uses Check 21, then a bank can clear a check in as little as 24 hours, rather than taking several days to do it as what was being done in the past. Rather than sending the check to Bank A, Bank B would keep the actual check. If person A is willing to have a copy of his or her canceled check, then they can request a substitute check from their bank A. The substitute check is an authorized electronic copy of the original check.
Consumer should request for a substitute check
Those consumers who get their canceled checks back from the bank with each statement can ask for a substitute checks. More consumer protections are provided by requesting substitute checks and it makes disputes much easier to resolve. There are some cases, when a bank account cannot be re-accredited if the customer does not have a substitute check.
If a check clears an account twice, or an unauthorized check is written, then the substitute check can be used in place of the original one to resolve the issue. If you are having any dispute with the bank, make sure to ask for a substitute check, not a copy, because the substitute check is a legal document which comes with unique rights and protections.
Some banks use a paper substitute check
Not all banks transfer images electronically under Check 21, although all of them now create substitute checks. In some cases, a paper substitute check is created by the bank and then they send it to the issuing bank to clear it.
The original checks are kept by the bank. They are deposited there for a set period of time and then destroyed. To find out if your bank processes checks electronically or on paper, talk to your bank manager, he is the person who can also provide more information about your rights and protections under Check 21.
