Fact Check

Check 21

Will the 'Check 21' Act prevent consumers from 'floating' checks?

Published Sep 19, 2004

Claim:   After the implementation of "Check 21" on 28 October 2004, consumers will no longer be able to "float" checks.

Status:   Multiple — see below.

Example:   [Collected on the Internet, 2004]

"Check 21" starting in late October

You've probably bought something in a store with a check even though you don't have the money in your account at the time. You figure you have a few days for the check to clear, and by then the money will be there. It's called the "float." Well, the float is slowly becoming a thing of the past. Because of a new law going into effect in October, money will be drafted from your account immediately when you write a check. It's called "Check 21," and it allows retailers to scan your check through a machine that deducts the cash within minutes. It's essentially the end of the paper check system, as well, because the check will eventually be destroyed. There will be an image of the check online and that will serve as proof if you need it. But everything is becoming electronic, and a bank will know if a check is good right away. So, be prepared to move to an electronic bill pay system. It's the smart way to go. What about checks that you deposit? Well, the float is no longer available to you, the customer. But the bank still will hold a deposit for a few days to make sure it clears. It's not fair, but it's the way it's happening.

What are the main effects of "Check 21" on consumers?

You won't be able to get your original paper checks back, because your bank will no longer have them.

Checks you write will clear sooner, increasing the risk that a check will bounce if funds are not in the account when you write the check. Don't write a check unless the funds are already in the account to cover it.

You may not get access to the funds from checks you deposit any sooner, because the new law does not shorten check hold times. After 30 months, there must be a study on whether banks are making funds available to consumers earlier than the allowable hold periods.

Banks will save money on processing checks, but banks are not required to share these savings with consumers.

Different kinds of copies of a check will have different rights attached. Check 21 creates a new kind of paper copy of an electronic image of a check. This special kind of copy is called a "substitute check." Only a substitute check can be the legal equivalent of the original check, and only a substitute check triggers your right to recredit of disputed funds. A regular copy of a check does not carry these same protections. If you ask for a copy of a check, your bank may send you an ordinary copy instead
of this special kind of copy which triggers legal rights and protections unless you ask for a substitute check.

A bank other than your bank will have your original check, and will decide whether to destroy it. Neither Check 21 nor other law requires a bank to keep your original check for any period of time. Before Check 21, your own bank decided how long to keep your original checks, if you didn't get them returned with your statement. Under Check 21, the bank of the person you wrote the check to may decide when to destroy your check.

Consumers will get new rights for some electronically processed checks, but not for others. When a so-called "substitute check" is provided to a consumer, Check 21 gives the consumer a right to have funds of up to $2,500 recredited to the consumer's account in 10 business days if the check is paid twice, paid for the wrong amount, or otherwise paid in error. The statute is ambiguous about whether this new right applies when a paper substitute check is used in the processing of the check but is not returned to the consumer. The regulations restrict the right of recredit only to checks where the consumer was provided with a substitute check. If a check is processed electronically by all the banks it is routed through without the use of a substitute check and the consumer is not provided
with a substitute check, then the check remains under state check law. In that case, the consumer does not receive a 10 day right of recredit even if the electronic image of the check is paid twice, paid for the wrong amount, or if both the electronic image and the paper check are paid.

Consumers who want to maximize their consumer rights should ask for return of "substitute checks" with their checking account statements. Watch out for fees associated with a substitute check-returning account. Look for another bank if your bank charges a high fee to get copies of all your checks as substitute checks.

Only the special "substitute check" can be legally equivalent to the original check to prove payment. The copies that a bank sends to consumers under a so-called "voluntary truncation" agreement, where the consumer agrees not to get the checks back, do not prove that a payment has been
made, and do not trigger your Check 21 recredit right.

When do these changes go into effect?

Check 21 becomes effective October 28, 2004.

Origins:   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


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.

Additonal information:  

  Frequently Asked Questions About 'Check 21' Frequently Asked Questions About "Check 21"   (Federal Reserve Board)
  Questions and Answers About 'Check 21' Questions and Answers About "Check 21"   (Consumers Union)

Last updated:   28 October 2004


  Sources Sources:

    Kristof, Kathy M.   "Checks About to Be Put on Fast Track."

    Los Angeles Times.   5 September 2004.

    Associated Press.   "Banks Implement Check 21 Starting Thursday."

    28 October 2004.

David Mikkelson founded the site now known as snopes.com back in 1994.