...And so are our checking practices. New technology has spawned many modern changes to the way we do things. Oft times these changes are not apparent to the average person, but a new procedure for check clearing will manifest itself in ways you will want to know.

Historically, whether across town or across the continent, checks had to be physically transported. However during the transportation shutdown immediately following the Sept. 11, 2001 terrorist attacks, the banking industry’s ability to transport and process checks was severely crippled, leaving some $47 billion worth of checks in limbo. This prompted the U.S. Government to begin drafting legislation to address the check transport problem.

On October 28, 2003, Congress passed the Check Clearing for the 21st Century Act. Popularly referred to as “Check 21,” the law’s objective is to improve the overall efficiency of our nation’s payments system. The legislation is intended to reduce the dependence of the check payment system on physical transportation networks and to improve overall efficiency of the nation’s payment system; thus avoiding unexpected disruptions due to attacks or natural disasters.

How does Check 21 work?

Check 21 becomes effective Oct. 28, 2004. By that date, every bank will be required to accept substitute checks, just as they currently accept your original paper checks.

To speed processing, the law encourages financial institutions to substitute electronic images for paper checks. The check images can then travel through the payment system electronically. At any point in the collection process, a financial institution can receive a check, make an image of it, and then process the check image electronically. This electronic image can be re-created into a paper item at any time in the collection process. When this happens the check image is now referred to as a substitute check or image replacement document (IRD). This substitute check is the legal equivalent of the original check, and includes all information contained therein; therefore, it can be used as though it were the original.

How does Check 21 affect me?

Check 21 includes several safeguards for check writers: it helps speed check clearing, so check fraud can be discovered faster — thereby enhancing efforts to catch the bad guys in the act. For the consumer this means quicker resolution of claims. Further, once a bank creates a substitute check it is their responsibility to warrant that it is accurate and produced in accordance with industry standards for quality.

A word of advice — try to avoid the Check 21 “Catch 22” — bounced checks. The anticipated benefits of the law, such as decreased fraud, less paper, and increased security are derived through faster check clearing. However, the consumer will no longer have the traditional extra days of “float” between the time you write your check and when the money is actually debited from your bank account.

Although approximately 41 billion checks are written and processed each year, due to today’s “paperless” payment options, the number is actually declining. Check cards (debit cards) are used in increasing numbers, and with the advent of Internet banking, some 13 million U. S. households are now choosing to pay bills online, gaining access to real time balances and transfers. These consumers have discovered the distinct advantages of these alternative payment methods.

Some banks are already beginning to send through substitute checks. So, you may even now begin seeing substitute checks in the following situations:

• If you get your checks back with your statement
• If you request a photocopy of a check that cleared your account
• If a check you deposited is returned unpaid

   Your Rights

It’s always good to know your rights. You have protections under Federal law pertaining to substitute checks, just as you do with your original checks or electronic debits to your accounts. If you believe that an error has occurred, such as the wrong amount was withdrawn from your account, or money was withdrawn more than once for the same check, you have 45 days to make a claim under the law. Your bank may opt to extend that deadline even further. However, it behooves the consumer to stay current and keep track of your accounts. If a claim becomes necessary, it must include:

• A description of why you have suffered a loss (for instance, you think the amount withdrawn is incorrect)
• An the estimate of the amount of your loss
• An explanation of why the substitute check you received is insufficient to confirm that you suffered a loss
• A copy of the substitute check, or the following information to help identify the substitute check: check number, name of person to whom you wrote the check, and the amount of the check.

   The Future

Yes, “the times they are a changing”, and technology is leading the way. In the case of Check 21 we are solving a problem with technology; hopefully simplifying our banking practices while at the same time preparing against future attacks on our way of life.