The Check Clearing Act for the 21st Century
The Check Clearing for the 21st Century Act, otherwise known as Check 21, went into effect in October 2004. This new law has had a noticeable effect on the banking industry, allowing banks to save both time and money when processing checks. It also affects customers, especially in the speed in which checks can now clear an account.
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Transferring Checks
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One of the major changes the Check Clearing for the 21st Century Act put into effect was that of allowing banks to process checks electronically. Before the new law, banks had to transfer checks by ground or air. Checks began at the bank where they were cashed, but eventually ended up at the bank which actually paid out the sum specified on the check. All this transportation was obviously costly and time-consuming. Since Check 21, banks can use scanned images of the checks to send each other the same information.
Bouncing Checks
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The Check 21 act means bank customers have to be much more careful not to bounce checks. Customers who are used to writing checks before the necessary funds are actually in their account (customers who, for example, write a check the day before payday) may find that, with the new laws, the check is processed before funds are available. This could result in bounced check fees from the bank, the vendor, or both.
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Canceled Checks
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Before the Check Clearing Act for the 21st Century went into effect, many customers were used to receiving their canceled checks in addition to their bank statements each month. However, since Check 21, banks no longer send canceled checks. Rather, they send substitute checks, which are copies of the front and back of each check. There is no legal difference between a canceled check and a substitute check.
Recredit
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If there is a mistake in processing a check (the check was processed twice, for example), Check 21 ensures certain rights for the customer. A customer may use his substitute check to request a recredit of the improperly deducted amount, up to the amount of $2,500. A customer must have a substitute check to request this recredit.
Holds
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A bank may "hold" money deposited into a customer's account for a specific amount of time. Before Check 21, the Federal Reserve Board already had regulations on the maximum number of days banks could hold funds. While Check 21 didn't alter these timelines initially, it does stipulate that, as banks begin to process checks more quickly, new guidelines will be put into place accordingly for hold times.
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References
- Photo Credit check book image by Rob Hill from Fotolia.com
