Check 21: how does new law affect you?

The Check Clearing for the 21st Century Act, commonly known as Check 21, changes the way checks are processed in the United States. Check 21 is intended to upgrade and safeguard the nation's banking system, foster innovation in the check processing system and improve the overall efficiency of the payment system.

What's changing and why?

Beginning Oct. 28, 2004, changes are scheduled to go into effect in how paper checks are processed in the U.S. The changes are a result of a law, Check 21, passed by Congress in 2003. This law will affect all banks, even if they do nothing to change their current check processing operations.

Congress passed Check 21 in part because of the difficulty experienced following the 9/11 terrorist attacks. Due to the shutdown of the nation's air transportation system, movement of paper checks was severely impacted. The new law makes it easier for banks to process checks electronically rather than by transporting original paper checks. This will speed up check processing and provide stability and continuity, especially in the event of any future crisis situations.

The new law has three basic provisions:

1. It permits (but doesn't require) banks to convert paper checks into electronic data, eliminating the need to transport and retain paper checks.

2. It authorizes banks to create substitute checks from electronic data.

3. It says that a substitute check is the legal equivalent of an original check.

All bank customers (consumer and business) may be affected by Check 21 because of the potential to receive a substitute check. A substitute check is a paper reproduction and legal equivalent of an original check. It contains an image of the front and back of an original check and is suitable for automated processing in the same manner as the original check. Anyone who receives a substitute check must recognize it as a legal equivalent of an original check. Further, anyone who requires an original check must accept a substitute check as its legal equivalent.

What does law mean for bank customers?

Bank customers who use paper checks will experience changes as a result of Check 21. Under the new law, banks are permitted to decide if they want to convert paper checks to electronic form. Those that choose to do so will be allowed to destroy the original paper check, so the original cannot be returned to the customer.

Customers should be aware that when paper checks are converted to electronic form, they would be processed more quickly, reducing the time it takes for the transaction to clear. In addition, Check 21 includes various consumer protection provisions to reduce fraud and ensure security.

What are the benefits for bank customers?

Check 21 will speed up the transition from paper-based to electronic transaction processing. This upgrade of the nation's payment processing system will create a safer and more efficient banking environment for all U.S. consumers and businesses.

Already many bank customers do not have their original cancelled checks returned. Check 21 will help additional consumers learn that returned original checks are unnecessary in today's electronic environment. In instances where cancelled checks are required, substitute checks will be just as good as originals.

Will checks clear faster once Check 21 becomes effective?

Both checks that you write and deposit may clear faster. As more and more banks make the investment to capitalize on the opportunities presented by Check 21, the number of checks clearing faster will increase.

Steven P. Emerson, CTP, is Vice President of National City Bank Global Treasury Management in Traverse City. Reach him at or 231-935-1239.