Check Clearing Enters the Digital Age The Check Clearing for the 21st Century Act, commonly known as Check 21, is a federal law that is designed to improve efficiency in the check clearing system. It also created a new document called a Substitute Check. . Electronification Check 21 makes it easier for financial institutions to process checks electronically. An image of the original check can be stored electronically, transferred electronically, and then printed out when needed. Once an electronic image of the original check is created, the paper check may be stored or destroyed. According to U.S. Senator Harold Ford and U.S. Representative Melissa Hart, co-authors of the original bill, America’s economy and financial institutions will be better protected and suffer less interruption in the case of a national emergency, such as the terrorist attacks of September 11, 2001. With air traffic across the country grounded on that day and for several days following, banks were forced to take drastic steps to ensure the shipment of checks from bank to bank. Check payments across the country were delayed. Checks Will Clear Faster In addition to protecting the flow of checks between financial institutions, Check 21 lets checks clear faster. That means check writers could lose the “float,” or time lag between when the check was written and when funds were withdrawn from the account. Substitute Checks Check 21 creates Substitute Checks, a paper copy of the electronic image of the original check. Substitute Checks are legal equivalents of the original paper checks and can be used in the same way. It will have all the information contained on the original check, from both the front and back. It will also contain a legend that states: “This is a legal copy of your check. You can use it the same way you would use the check.” At times, it has been appropriate to receive a cancelled check – for instance, when an item is returned unpaid. With Check 21, members may receive Substitute Checks rather than the original. This law requires everyone (financial institutions, customers, businesses, government agencies, etc.) to accept a properly prepared Substitute Check as if it were the original check. Check 21 allows financial institutions to make more and better use of technology. It provides a practical alternative through electronic information, while maintaining the ability to provide a paper check when needed.
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