CBA Publications >> CBA Regulatory Compliance Bulletin >> Vol 2000 No.21 October 21, 2004

Vol 2004 No.21 October 21, 2004

Check 21 Q&As for Customers

These model questions and answers are intended to help banks communicate with their consumer customers about Check 21. These are written generically, but you should review each question and answer to ensure that they are consistent with your bank's policies. Feel free to use this material, or any part thereof, to produce your own communications. Also, visit the new Check 21 pages on CBA's website at www.calbankers.com.

Why did Congress Enact Check 21?

Congress has, since the 1980's with the passage of the Expedited Funds Availability Act, sought to modernize the nation's check payment system. Since then, alternative payment methods, including debit cards and conversion of checks into debit-like transactions, have thrived. The Check Clearing for the 21st Century Act ("Check 21") further reduces the payment system's reliance on couriers, trucks, and airplanes to clear checks. The present need to ship checks physically across the country is costly, wastes fuel, and clogs the nation's transportation system.

Check 21, by emphasizing electronic clearing, will allow banks to handle the approximately 40 billion checks that consumers and businesses write every year more efficiently, and thereby establish a more stable and efficient check payment system.

How does faster check clearing benefit consumers?

Because banks will reduce overhead costs through electronic clearing, banks will be able to deliver products and services more cost effectively, in the same way that the efficiencies of the Internet allow many banks to provide free Internet banking and free bill pay services. For example, as banks convert to electronic processing, more customers may be able to view cancelled checks online.

Will Check 21 changes happen immediately?

The transition to electronic processing will be gradual because Check 21 does not require banks to upgrade their processing systems overnight. Rather than like flipping a switch on October 28, 2004, when Check 21 becomes effective, the changes will take place gradually.

Will the checks I write clear faster?

Some checks you write may clear faster, though the change will be gradual. This means checks that you write could be debited from your account sooner. To avoid overdrawing your account, you should only write checks against funds you actually have in your account. Treat a check transaction in the same way you would treat a transaction using your ATM or debit card-assume that the funds will be debited immediately. To avoid overdraft and non-sufficient funds fees, pay attention also to the following:

Monitor your account regularly, considering whether pending checks and automatic payments have cleared.
Pay attention to your electronic transactions, including ATM withdrawals, debit card purchases, and online payments.
Don't forget your automatic bill payments you may have set up for utilities, insurance, or loan payments.

Will my funds be available sooner under Check 21?

Most banks already allow access to deposits earlier than the law requires. Congress did not immediately adjust the funds availability hold periods because it is unknown how quickly the industry will convert to electronic processing. Also, check processing will not speed up uniformly to support a change in the federal rules. However, the Federal Reserve Board is required to report to Congress in 30 months with a recommendation whether to adjust the times that banks may hold funds for certain checks.

What are substitute checks?

A substitute check is a paper reproduction of the front and back of the original check that is used in the check clearing process. Image statements that show multiple pictures of canceled original or substitute checks on a single page are not substitute checks. Each substitute check includes a statement identifying it as the legal equivalent of the original check. Consumers who presently receive cancelled original checks may begin to see substitute checks mixed in with originals.

What happens to my original check?

Typically, original checks are destroyed by the bank that converted the check. There are no requirements governing the retention of original checks. You may obtain a copy of any check from your bank, and remember that you may continue to rely on copies of checks for proof of payment.

Can I demand a substitute check from my bank instead of a copy?

Your bank may provide you with a substitute check, but it is not required by law to do so. If your bank does not provide you with a substitute check, you can use a copy of an original or substitute check as your proof of payment.

How am I protected from unauthorized transactions?

Generally, you will not be responsible for unauthorized transactions, whether you receive back an original check, substitute check, or a copy of either. If you received a substitute check and believe there is an error, consult the notice that your bank has delivered to you regarding your Check 21 recredit rights. Whether through a refund or a recredit, you will be reimbursed for any check transactions that you did not authorize.

Can I still get my canceled checks back?

If you get your canceled checks back with your account statements today, you will continue to receive canceled checks unless your bank notifies you otherwise. The only difference will be that some of the canceled checks that you receive may be substitute checks. You can use a substitute check (or an image of an original or substitute check) the same way you would use an original check, such as for recordkeeping and proof-of-payment purposes. If you do not receive original checks, you will notice little, if any, changes from Check 21.

The information contained in this CBA Regulatory Compliance Bulletin is not intended to constitute, and should not be received as, legal advice. Please consult with your counsel for more detailed information applicable to your institution.