Fact Sheet 30:
Check 21:
Paperless Banking

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Copyright © 2004-2016
Privacy Rights Clearinghouse
Posted October 2004
Revised July 2015

1. Introduction
2. What Check 21 Means to You
3. Electronic Check Conversion: What You Need to Know
4. Tips for Check Writing
5. References

1. Introduction

Check 21 is a way to make check processing easier and less expensive for the financial industry. The old method required that your check be physically moved from one point to another. For example, if you wrote a check to a department store, that check was deposited into the store’s bank account. The check was then physically transported, usually by truck or by air, back to your bank. The check was then “cleared,” which means the funds were taken out of your account and transferred into the store’s account.

The route was not always directly from Point A (the store) to Point B (your bank). At a minimum, checks had to be processed through a Federal Reserve Bank. Under Check 21, the check you write no longer has to move beyond the store’s bank. That bank, instead of transporting your check along with thousands of others included in a days’ receipts, may transmit an electronic image of your check.

Check 21 gave banks the option of processing checks electronically. The law facilitates check truncation by creating a new negotiable instrument called a substitute check, which permits banks to truncate original checks, to process check information electronically, and to deliver substitute checks to banks that want to continue receiving paper checks.


2. What Check 21 Means to You

What are substitute checks?

A substitute check is the legal equivalent of the original check and includes all the information contained on the front and back of your original check. This copy is made by the bank that receives your payment.

What happens to my original check?

Your original check is kept by the bank that first receives it. Originals may be destroyed or kept on file, but that’s up to the receiving bank.

What can I do about errors?

Check 21 created what is called an “expedited recredit” procedure if a check is paid twice or paid for the wrong amount. Check 21 says you have a right to a refund of up to $2,500 within 10 days. In case of errors, you have to complain to your bank.

What are the disadvantages of Check 21?

First, it may not be easy to prove fraud if someone alters you check. Because “substitute checks” are copies, changes made to the original may be harder to detect. Second, you can no longer count on a “float” of a few days between the time you write a check and the time the check clears. This threatens to result in many more “bounced” checks and costs to consumers in overdraft charges.

3. Electronic Check Conversion: What You Need to Know

Check 21 is just one more step toward a paperless business world. Some checks you write are never returned with your monthly account statements. That’s because checks you write can be used only as a source of information to access your account. This is allowed by the Electronic Funds Transfer Act (EFT Act), the same law that covers ATM and debit cards.

How is electronic check conversion different from Check 21?

Check 21 allows banks to process all payments electronically without physically sending the check from Point A to Point B. An electronic check conversion allows a merchant, a credit card company, or others who receive your checks to extract information from the check and process the payment electronically. You have to get notice that your payment will be processed electronically.

A merchant that processes your checks electronically is required to give you notice that it is doing so. It must also notify you of fees charged for returned checks. A returned check could cost you plenty, both in fees paid to the merchant as well as overdraft fees charged by your bank

4. Tips on Check Writing

You can take these steps to minimize your risk and avoid hefty fees:

  • Watch accounts closely. If you find an error, immediately notify your bank that you want a “recredit,” that is a return of your funds. Make your request in writing. Follow-up to make sure the funds have been returned in the 10 days required by Check 21.
  • Learn to live without the “float.” Expect that any check you write will clear almost immediately. Make sure you have enough funds in your account to cover any check you write.
  • Closely review your bank’s terms and fees for overdraft protection.
  • Pay by debit or credit card if you don’t like the idea of your check being processed under electronic conversion, but be aware of the risks of debit cards. 
  • Write checks only to merchants or others you know and trust. Remember, anyone who receives a check from you also receives the information necessary to access your account.

5. References

Federal Government


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