Checks Are Changing:
Consumers and Check 21

The Check Clearing for the 21st Century Act became effective in October 2004. Now known simply as Check 21, the legislation's goals include: "to improve the overall efficiency of the nation's payments system."

Check 21 was created to reduce the time, risks, and costs associated with paper check processing. Currently, checks travel on automobiles, trains, and planes during the clearing process. When Check 21 becomes effective, all banks will be able to send digital images of checks electronically, eliminating the need to physically transport paper checks between banks.

What does Check 21 do?
Check 21 will create a more efficient check processing system, without changing the way you write checks. It includes several safeguards for check-writing consumers. Check 21 helps speed check clearing, so check fraud can be discovered faster. Faster fraud detection means faster resolution for customers.

How will Check 21 impact me?
After taking a digital image, the bank to which your original check is presented for payment may destroy it. If necessary, a copy may be created from the digital image. Since images are legal copies of your original checks, there is no need to save the original.

Funds may be removed from your account sooner than in today's system, therefore there will be less "float time." As always, make sure you have enough money in your account before writing a check.

How will I benefit with Check 21?
You'll have better fraud protection. Faster processing means faster detection and faster resolution.

What items are subject to Check 21?
All checks, including cashier's checks, payroll checks, personal checks, and business checks are subject to Check 21. Savings bonds are not checks and therefore are not subject to Check 21.

Electronic Check Conversion
You may already have experienced another emerging payment practice called "check conversion," which uses the automated clearinghouse, or ACH, system. Example: You write a check for a purchase and you are handed the check back immediately after the store has run it through its digital check reader. Your check as been converted into an electronic ACH payment at the store or shop, and the payment will be reflected in your bank statement, which becomes the legally accepted proof of your payment. This sample transaction is different from Check 21.

How does Check 21 relate to electronic check conversion (e-check)?
Check 21 involves creating digital images of original checks, but they are still processed under the same laws and regulations as paper checks. On the other hand, electronic check conversion, or e-check, occurs when a check is converted into an electronic funds transfer. The transaction is then routed through the Automated Clearing House (ACH) network, the same system used by Direct Deposit. On your monthly statement an e-check will be listed with other electronic funds transfers, such as automated debits for health club memberships or a payment setup with a utility company.

All of these changes allow for faster payment processing and even better service to the nation's banking clients.

The ABA Education Foundation contributed to this article.