Explanation of Check 21: Electronic Banking

For many years, when people found out that I was worked at a bank, the first question they would ask is, "Are you a teller?" Times sure have changed. The question I get asked most frequently now is, "What exactly is Check 21?"

Check 21 is a law that was passed on October 28, 2004. The attack on September 11 is mainly what prompted this Act. (All non-military air transportation was grounded for a period of time) Its formal name is Check Clearing for the 21^st Century Act. The main intent of this act is to eliminate check-clearing delays by removing the requirement that checks must be physically transported to the banks that issued them in order to be cleared for payment. You see, most checks are transported by ground and/or air couriers. Depending on how far away the issuing bank is, it could take several days before the check actually clears. This is called float.

Playing the Float Game

Some of you may have figured out that if you write a check on Wednesday, but you don't get paid until Friday, your paycheck may make it to the bank before your check clears. So you're covered, right?

Maybe not. May retailers now have the option to scan your checks and send their electronic images directly to their bank for IMMEDIATE deposit. With this new technology, checks generally clear within 24 hours but beware because it is possible to clear a check on the very same day it is written! In other words, don't write the check if you don't have the money to cover it.

Other Impacts of Check 21

Banks are no longer required to return your original check. In its place, you may receive a substitute check. A substitute check is a legal copy of your original check and for all intent and purpose, it is absolutely no different than your canceled check. You may have already received a substitute check back with your monthly bank statement.

How Fast Are We Moving?

Keep in mind that when the Act went into affect on October 28, 2004, banks were not required to start processing checks electronically. The Act simply gives banks the authority to process them electronically.