The Check Clearing for the 21st Century Act
Effective October 28, 2004, the Check Clearing for the 21st Century Act became law. Below is some information about the new law and how it may impact consumers and their checking accounts.
Note: Because payments might be processed faster, when a check is written, the money may be deducted from a consumer's checking account sooner. As a result, consumers should be sure they have enough money in their account to cover the amount of the checks they write.
Check Processing Steps Into the 21st Century
Not that long ago, the primary way to pay for things was by writing a check. With the growing use of ATMs, credit cards, debit cards and automated clearing house (ACH) transactions, fewer and fewer transactions now involve a physical check.
The “Check Clearing for the 21st Century Act” (Check 21), a new law that took effect in October, moves checking accounts even closer toward a “paperless” society.
Check 21 will change the way checks are processed in the United States, promoting electronic transmission of “substitute check” images instead physically transporting the original paper items for clearing and settling payments.
The Act empowers banks to curtail the original checks, process them instead as electronic images and, where necessary, to provide paper substitute checks for record purposes. All checks, except foreign checks, are eligible to become substitute checks.
What are the main effects of "Check 21" on consumers?
You won't be able to get your original paper checks back, because your bank will no longer have them. Your check will be held or destroyed by the bank of the person or company you wrote it to, not by your bank.
You may be provided a paper “substitute check” that meets requirements of Check 21 to be the legal equivalent of the original check.
Checks you write will clear sooner, increasing the risk that a check will bounce if funds are not in the account when the check is first written. You should never write a check unless the funds are already in the account to cover it.
Consumers will get new rights for some electronically processed checks. These provisions are similar to Regulation E error resolution procedures for consumer electronic funds transfers.
When a substitute check is used in the processing of the check, if the item is paid twice, paid for the wrong amount, or otherwise paid in error, a bank will generally have 10 business days to complete its investigation of the consumer’s claim and to recredit the account for amounts up to $2,500 per check, pending completion of the investigation.
Click here for information about "Your Rights Regarding Substitute Checks".
Normally, PacTrust Bank customers will not receive substitute checks except in unusual circumstances (such as when given a returned deposit item that was drawn on another bank, when that item has been converted to a substitute check). Substitute checks are clearly identified as such.
Many checks are already converted to paperless “eCheck” transactions
Consumers may write a check to make a payment, but the retailer or a billing company can choose to process your payment by converting it from paper to electronic data form. Since March 2002, Retailers and billers can use the magnetic ink character recognition information from checks to create ACH transactions.
Paper check conversion (PCC) or accounts receivable conversion (ARC) – both known in banking circles as "eChecks" – convert paper checks received over the counter or through the mail into electronic debits to the check writer's account.
The number of paper checks converted to eChecks is growing. Billers prefer ACH to paper, because the settlement time is much faster - typically two days, compared with the three to five days it can take to ship paper checks across the country.
eCheck - Differences between Paper & Electronic
eCheck ACH transactions are listed on your checking account statement and HomeAccess transaction history, and will even show check number information. But, because these items are processed differently:
eCheck transactions will not be included on the separate list of “checks paid” sorted by check number on your account’s monthly statement.
You can’t input the check number on Touch-Tone Teller to see if the item has cleared.
The item will not be included in sorted lists of checks on HomeAccess.
Copies or images of converted eChecks are not available to the consumer or his bank, so any disputed transaction amounts must be resolved directly with the payee.
With eChecks and Check 21, float time disappears
Many prefer writing checks because it can take several days (called “float”) from the time a check is written to when it actually clears the bank account. eChecks already shave several days off of float, and Check 21 image transmission is expected to be faster than ACH conversion.
The checks you write will clear your account quicker, in the not too distant future perhaps as soon as received by the payee. Eventually, image check exchanges may take place in real or near-real time (similar to debit card transactions), essentially eliminating check “float”.
To protect yourself from bouncing checks, PacTrust Bank has some alternatives…
Avoid checks altogether! Use our free Online Bill Pay service.
You don’t need to worry whether a payment will clear your account as a physical check, image substitute or ACH conversion item. Avoid use of checks altogether with our totally-free HomeAccess Online Banking Bill Payer system.
Writing checks, the high cost of postage, and trips to the post office, make paying bills the old way both inefficient and expensive. There's no cost to sign up or use our Bill Payer service. And, you can make an unlimited number of payments - for free!
It's fast and easy to use. You can make a Bill Payment today or schedule one for a date in the future. The payment amount will be deducted from your checking account, and the payment will be on its way - automatically. We even have a “timely payment guarantee”.