Banks Begin Implementing Check 21

If you have a habit of floating checks -- writing checks before the money is actually deposited in the bank -- you may want to reconsider the practice now that banks in the United States have begun implementing new "Check 21" regulations.

New federal rules designed to speed up check processing went into effect Oct. 28, 2004 which will allow banks and other financial institutions to exchange electronic images of checks rather than transporting actual paper checks to processing centers around the country.

This means that checks will clear banks much more rapidly, perhaps within hours rather than several days. This will lessen the "float" time between when a check is written and the funds are withdrawn from the bank. Some observers believe the new process will result in an additional 7 million checks a month bouncing -- which could mean up to $170 million in extra bank fees for consumers.

The Check Clearing for the 21st Century Act, otherwise known as Check 21, came about after the terrorist attacks of September 11, 2001, when air transportation came to a halt in the U.S. and unprocessed checks backed up for weeks.

Check 21 Has Some Drawbacks

Now banks will only receive an electronic image of the original check and consumers will no longer receive their cancelled checks in their monthly statements.

One of the disadvantages of the new Check 21 system concerns law enforcement efforts. Since banks will now be able to destroy the original checks once they clear the customer's bank, only the electronic image of the check will remain. It will be much more difficult to identify and prove forgeries and check alterations for police investigating criminal activity.

The electronic images cannot be used to check for changes in ink or handwriting anomalies, or dusted for fingerprints.

What Consumers Need to Know About Check 21

With the new regulations going into place, the U.S. Public Interest Research Group recommend that consumers:

• Only write a check if they know the funds are in the bank.

• Understand that they need to seek a "substitute check," which is an electronic copy of their paper check, if they get involved in a payment dispute.

• Carefully monitor their bank statements in case the new electronic system results in a check being double-debited or the amount of the check being misread.

If a mistake is made, Check 21 rules require financial institutions to credit an account within 10 days.