Writing a check today hoping it won’t be deducted from your checking account for a couple of days is now a thing of the past! We likely have all done this at one time or another. However, some consumers rely on “float” as a regular practice. Soon, “float” will be a thing of the past.
The Check Clearing for the 21st Century Act or “Check 21” cuts the time it takes for a check to clear your checking account from days to hours. Check 21 became law on October 28th, 2004. The objective is to enhance the efficiency in the payments industry and systems. The new law eases the electronic exchange of checks by making a “substitute check” a legal, negotiable instrument. Check 21 makes it acceptable for financial institutions to exchange electronic files of checks for clearing purposes. Supporters of Check 21 claim that the elimination of trucking and flying paper checks across the country could save up to $2 billion a year. It also allows those institutions who do not wish to accept electronic files to use a “substitute check” as a legal, negotiable instrument.
What is a “substitute check”? It is a paper copy of a check from an electronic file. And, as long as the “substitute check” satisfies some basic criteria, it is as legal as the original check.
Let’s say Jack and Jill write a check to pay for groceries.
The store deposits the check and the money is credited to the store’s account. Now, the grocery store’s institution has to collect the money from Jack and Jill’s institution.
The institution sends an electronic file of the check through the Federal Reserve for payment. This can be faster and less expensive than using the original paper check.
The store’s institution is credited by the Federal Reserve who will now collect from Jack and Jill’s institution by sending the same electronic file to them or, if their institution prefers, they may opt to receive a “substitute check” or a paper copy of the electronic file which Check 21 mandates as legal and negotiable.
As you can see, Check 21 and its processes will likely be transparent to most consumers. However, the major thing to remember is that Check 21 will significantly reduce the clearing time for checks and you cannot rely on float anymore.
First, be sure that you have the money in your checking account to cover whatever checks you write. And if you do write a check without the money in your checking account, be sure to use online banking or Dort by Phone to quickly transfer the money from your share/savings account to cover it.
Second, be assured that our Overdraft Privilege Program (ODP) will likely pay the check as long as the check amount and fee does not exceed the ODP limit and balance, if any.
Consumer Guide to Check 21 and Substitute Checks – The Federal Reserve Board