Check 21 Featured

6:46am EDT April 28, 2004
The new law that the government refers to as the "Check Clearing for the 21st Century Act" (or Public Law No. 108-100), everyone else calls simply "Check 21."

The law takes effect Oct. 28, 2004, and is the result of long, hard-fought efforts to bring the process of paying by check into line with advances in technology. Some industry experts predict it will have a major impact on the future of check use and processing.

Financial institutions stand to benefit from the new system through accelerated check processing time, which could result in greater efficiency and reduced costs. Benefits to bank customers include faster processing of their checks and a minimizing of check handling and shipping expenses. There is also the likelihood of fewer processing errors, as well as less opportunity for fraud.

The most notable change under Check 21 is that paper checks will no longer be returned to the account owner. Checks will be held or destroyed by the bank that presents the original check for payment. Customers requesting the return of their checks will receive instead a "substitute check," which is an electronic facsimile of the check that has the same legal standing as the original document.

By sending a bank an electronic image of a check presented for payment instead of continuing to operate under the current multistep routing process that moves paper checks between financial institutions, checks will not only clear sooner, but financial institutions and businesses will be less vulnerable to potentially costly delays caused by bad weather or other emergency situations that affect transportation systems.

Under "Check 21," bank customers will have certain rights, particularly with regard to recrediting. When a substitute check is provided at the request of a bank customer, in the event of a bank error -- such as a check being paid twice or paid for the wrong amount -- the consumer has a right to have funds recredited to his or her account within 10 business days.

The recrediting procedures were created to protect the bank's customers in situations such as when an original check (or a better copy of the original check) is necessary to determine the validity of a customer's claim. The law requires specific procedures for filing claims, recrediting consumers' accounts, and providing customers with the appropriate notices.

The Federal Reserve Board is developing the specific wording of the information, which discloses and describes the procedures and rights of consumers. Faye T. Pantazelos is president and CEO of New Century Bank and its parent company, NCB Holdings Inc. She founded NCB Holdings, which provides corporate banking services, in 1997. Reach her at (312) 944-5400 or