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What is the Check 21 Act?
Check 21 is the common name for the Check Clearing for the
21st Century Act. It's new legislation that was recently passed
by congress and made a law when signed by the President of the
United States (remember "I'm just a bill" from Saturday morning
cartoons). Check 21 basically streamlines the traditional check
processing system by incorporating new electronic technology.
This new system replaces an outdated check clearing system that
banks and other financial institutions have used for many years.
The advantage is the ability to cut the time it takes for a check
to clear from days to hours.
The process to do this involves a pseudo or substitute check.
Check 21 now allows banks to use this in place of original
checks. The technique to make this a reality involves converting
the information on the check into an electronic file, which is
then sent to the maker's financial institution for payment. This
significantly speeds up the check clearing process from days to
hours. The original check can even be destroyed because a
substitute check can be made at any time during the process. This
image can be used as a proof of payment just like an original
check. In fact the checks look almost exactly like original
checks except for a slightly reduced image of both the front and
back of the original check.
You can expect to see a substitute check if the original check
was converted to an electronic file during the payment process
and the check turns out to be a bad check due to non-sufficient
funds in the payee's account. The bad check you receive will
actually be the substitute check. You may also receive a
substitute check if you request a copy of one of your own paid
checks provided that check was converted to an electronic file
during the payment process. Don't worry the Check 21 law allows
you to use the substitute check the same way as if it were the
original check involved in the initial transaction or
payment.
However, don't expect a rapid rollout of electronic file
conversion of checks right away. First financial establishments
(such as banks and credit unions) or not required to change from
paper to substitute checks due to the large upfront cost
associated with investing in the equipment needed to comply with
Check 21. Don't worry though many financial institutions will
gradually switch to the new system since it will save money over
time on the transporting of checks, improve security and mitigate
the loss associated with check fraud.
The consumers affected the most by this new change in check
clearing will be those individuals that write a check one day and
then attempt to transfer money into the account the next day or
write a check a day earlier then they are paid via direct
deposit. This method of floating money won't be as easy to
duplicate since in many cases electronic checks can clear in a
little as 4 hours. So although some consumers may feel an initial
wakeup call many will embrace the new act simply based on the
fact that it should curtail the fraudulent activity currently
seen in the financial industry.
Timothy Gorman is a successful Webmaster and publisher of
Debt-Relief-Solutions.com. He provides more debt relief,
consolidation and credit
repair information that you can research in your pajamas on
his website.
MORE RESOURCES:
Credit - Google News
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