On October 2003, the Check Clearing for the 21st Century Act became law. Now known simply as Check 21, the legislation's goals include "to improve the overall efficiency of the nation's payments system."

Previously, most checks had to be physically transported - whether across town or across the country - before they could be cleared. This was expensive and time-consuming. Check 21 provides a new option: legal acceptance of paper reproductions of original checks. This reproduction is called a "substitute check" and is produced from a digital image of the original check.

How Will Check 21 Affect You?

By October 28, 2004, every bank was required to accept substitute checks, just as they currently accept original paper checks. If you receive your canceled checks or electronic images of your canceled checks with your account statement, you will now also see substitute checks. A substitute check is the legal equivalent of the original check and includes all the information contained on the original.

Check 21 includes several safeguards for check-writing consumers. Check 21 helps speed check clearing, so check fraud can be discovered faster. Faster fraud detection means faster resolution for customers. Another safeguard: a bank that creates a substitute check must warrant that it is accurate. The bank also has to make sure that the substitute check is produced in accordance with industry standards for quality.

A Word About Check Conversion

You may already have experienced two other common payment practices, and each is an example of "check conversion", which uses the automated clearinghouse or ACH system.

For example, a retailer converts a paper check into an electronic ACH payment on the spot. In this situation, if you have written a check for a purchase, you are handed the check back immediately after it is converted into an electronic ACH payment at the store. Another example, regular service providers/creditors (telephone, utilities and credit card providers) convert your payments into ACH payments. The check has been "converted" to an electronic format, and you will not receive a copy of the original. The payment will be reflected in your bank statement, which becomes the legally accepted proof of your payment.

Efficient Check Clearing Benefits You

The improvements brought about through Check 21 allow for faster payment processing and even better service to you, the banking customer. A few of the benefits include:

• Faster check clearing
• Decreased Fraud
• Less Paper
• Increased Security