Check writers may have to rethink the way they manage their bank accounts beginning Thursday, October 28th when the Check Clearing for the 21st Century Act goes into effect.

Published 12:00 am Monday, October 25, 2004

The Act, which was signed into law last year, will bring about several changes in the banking industry. According to the Federal Reserve, the law will allow banks to “…enhance it’s efficiency by reducing some of the legal impediments to check truncation.”

In case you were wondering, according to the American Banking Association (ABA), “check truncation” is the process of holding a paper check at the bank at which it was deposited (or at an intermediary bank) and electronically forwarding the essential information on the check to the bank on which it was written. A truncated check is not returned to the writer.

In layman’s terms, it would be similar to one bank scanning your check when they receive it and emailng it back to your bank for approval, as opposed to mailing to them.

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Under the Check 21 Act a new devise would be created called a “substitute check” which would be the legal equivalent to the paper check written by the customer and would have all of the information from the original check.

“It speeds up the process of clearing a check,” says David Oliver of South Trust Bank.

“If you are a South Trust customer and write a check for your rent, but your landlord doesn’t bank with South Trust his bank will take your paper check and scan it and send it to us electronically for us to process,” says Oliver.

This new speedier process has some people labeling the Check 21 Act as the “check floating law”.

What is current practice for some people who use checks for payment, is writing a check for an amount that is not in the bank at that time and then depositing the money in their account after the check is written but before it has time to bounce for insufficient funds.

This practice can be risky, according to Oliver. He says even with out this law, banks are not always predictable so trying to time your deposit just right is not advisable and not an effective way to manage your finances.

“This is a good thing for the banking industry and good thing for consumers as well,” says Oliver. “This new practice will allow us to detect fraud faster and it also will allow us to give the customers a more accurate account balance.”

What may be different for many bank customers is no longer receiving a paper check with their statements at the end of every month.

Many people balance their bank accounts by using the returned checks that accompany the account information sent from the bank once a month. With this new system, the banks will not have to keep the original paper check, but will have the substitute version instead.

According to the Federal Reserve, the law also does not require a bank to automatically provide their customers with copies of substitute checks and it doesn’t regulate the amount in fees that banks can charge for generating a substitute check.

The Check 21 Act does stipulate that substitute checks are legal documents in the same capacity as a canceled check and can be used as legal proof of payment.

For more information on the Check Clearing for the 21st Century Act log on to

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