StreetWise - Check 21

Check Clearing for the 21^ST Century Act

You can no longer depend on "float" time

The Check Clearing for the 21^st Century Act ("Check 21") was signed by the president on October 28, 2003 and becomes effective October 28, 2004. The goal of the legislation is to increase the efficiency of the nation's payment system by utilizing technology.

Roughly 40 billion checks were written in 2003. In part because the 'physical item' must be transported from the financial institution (FI) of first deposit to the paying FI often stopping at one, two or three other FIs along the way, there is a huge amount of time and money expended in the check clearing process. September 11 also made it clear how dependent the effectiveness of the process is on unimpeded transportation.

Check 21 allows for "essential information" (data and image) to be captured electronically from the original paper item. Essential information includes the routing and transit number, maker's account number, check number, dollar amount, endorsements, the front and back image of the item including all endorsements, etc. The electronic data, not the original paper item, is then sent through the clearing process. Another paper item, a 'Substitute Check', can then be created from the electronic check file if necessary anywhere throughout the process that an electronic check file isn't accepted or when a consumer needs a copy of the check. The Substitute Check literally replaces the original check written.

The law also recognized that the original item is no longer returned to the maker, nor is it available to be sent back to the payee in a returned item situation, and addressed this by requiring very specific conditions that must be met in order for an item to be considered a true Substitute Check. Then and only then is a Substitute Check the legal equivalent of the originally drawn paper item with all of the same rights and warranties. It must also conform to defined industry standards in paper stock, dimension, and other generally applicable parameters.

If you have questions about a particular item or to make a claim contact us at 800.328.8797 Monday through Friday 8:00 a.m. to 8:00 p.m. or Saturday 9:00 a.m. to 3:00 p.m. Eastern time, or take a look in the Check 21 Q&A below.

IMPORTANT - You can no longer depend on the float

Checks processed electronically are likely to clear much faster - consequently consumers who in the past have relied on the ‘float’ (or the time between when you mail or pass the check and when the funds come out of your account) will need to make sure the funds are available when the check is written (NOTE: DCU is not currently processing electronically, however a DCU check could still be processed electronically at some other point in the clearing process).

Substitute Checks exist only when the original has been converted
It’s likely that larger dollar checks may be more commonly converted due to the faster clearing time and consequent faster assurance that the check is not going to be returned unpaid
It's likely that larger national merchants and firms will go electronic before smaller ones
Consumers are not losing any rights

Need the float? There are other options!

Digital Federal Credit Union
220 Donald Lynch Boulevard
PO Box 9130
Marlborough, MA 01752-9130
508.263.6700 • 800.328.8797

Your savings federally insured to at least $250,000 and backed by the full faith and credit of the United States Government. National Credit Union Administration, a U.S. Government Agency. Select for more information.