Check 21 Update

Editor's Note: Check 21 speeds up check clearing by utilizing electronic technology. Consumers will continue to write checks as usual under Check 21.

October 28, 2004 is the day that Check 21 went into affect. Not much happened on that day, but an effort to electronically interconnect check clearing networks gathered steam.

Check 21 Creates a New Negotiable Instrument - the Substitute Check (Sample): A substitute check starts out somewhere as an original check, is converted to an electronic copy for speedy transmittal and is reprinted on a check-sized piece of paper for old-fashioned processing from that point forward. A substitute check is given the same legal standing as the original (Sample). In other words, Check 21 speeds up check clearing by allowing the check to exist as a digital image during its journey to the paying bank.

Impact of the Substitute Check: The impact of the substitute check is huge. For example, a check deposited in New York may be converted to electronic format and instantly routed to SBSU for payment, eliminating several days of travel.

The Old Way : Banks have transacted business for centuries by physically exchanging paper instruments. Computerized processing, jet airplanes and freeways have sped up the paper exchange in recent decades, but the basic system has not changed. A check sent off to pay a bill may log thousands of miles in its round-trip journey from the maker to the recipient and back to the maker's bank.

The Old Way Nearly Failed us on September 11, 2001 : Our reliance upon the physical transportation of paper nearly cost the United States its financial stability. Bundles of checks sat for days in grounded airplanes after the attacks of 9/11/2001. Banks were unable to get paid for checks drawn on other banks and were forced to extend credit on a massive scale to their customers who deposited them. The banking system in the USA weathered the storm, but a major weakness with our payment system was exposed.

Laws are drafted to modernize check handling: "Check Clearing for the 21st Century Act" sailed through Congress virtually unopposed. It was signed into law by President Bush on October 28, 2003 and became law October 28, 2004.

What Check 21 Means to You

• Checks you write will post to your account much faster.
• Your original check will no longer be returned to your home bank.
• You may receive a substitute check if you deposit an original that is returned for non-sufficient funds.

NSF Checks and the Substitute Check: If you deposit a check that is later returned for non-sufficient funds (NSF), SBSU will send you a substitute check that you may re-deposit one more time. If it is returned a second time as "NSF", you should deal directly with the person who gave it to you. The check cannot be re-deposited again.

What Happens to the Original Check: The original check is truncated (taken out of circulation) as soon as it is converted to electronic format. The bank or vendor that digitizes your check is responsible for its safekeeping and eventual destruction after a short holding period. Moreover, banks must take care to prevent duplicates from entering the payment stream.

Consumer protection remains strong: A customer who examines his statement and promptly reports fraudulent charges to the bank is not liable if the problem is reported within 30 days of the first statement where the fraud appeared. The 30-day clock starts when the statement is mailed by the bank. This is the same protection that has been in place for years.

Sample: Image Replacement Document (IRD).

Also knows as a "Substitute Check"

Source: Accredited Standards Committee X9, Inc.

Source: Accredited Standards Committee X9, Inc.