Check 21 Basics

How the Check 21 Law Affects You

Check 21 is a law that allows banks to process checks more efficiently. Instead of shipping checks back and forth with trucks and airplanes, they create electronic images of checks and zap those images around electronically. Check 21 can make things easy for the banks, but harder for you. Let’s review the basics of Check 21 and how the law affects you.

Why Does Check 21 Exist?

Banks process huge volumes of checks. Their operations are very efficient and quick, but they are not as good as they could be. Checks need to move through machinery, be handled by people, and be shipped from location to location. All of this work takes time, costs money, and uses natural resources.

What Happens Under Check 21?

When banks take advantage of Check 21, they create an image of your check and transmit that image electronically. The image of your check, called a 'check substitute' is a legal instrument under Check 21 law just like your original check.

Does Check 21 Help Me?

Check 21 mostly benefits banks by making check processing more efficient. They could pass the savings from Check 21 on to you in the form of cheaper loans and higher yielding savings accounts, but don’t hold your breath.

If anything, Check 21 can cause headaches for you. Checks you write will clear faster, meaning that you enjoy less ‘float’ time, and your checks will not be ‘outstanding items’ for very long.

• How Check Float Works
• What are Outstanding Checks?

If you bounce checks, be sure to balance your checking account regularly so you know what you have. In addition, investigate ways to minimize overdraft fees.

• How to Balance Checking Accounts
• Overdraft Protection Plans

Check 21 and Electronic Check Conversion

Check 21 is different from electronic check conversion. Check 21 affects how banks clear checks, while electronic check conversion happens when you write a check to a business.

• Overview of Electronic Checks