Check clearing for the 21^st century (Check 21) is new federal legislation that will impact the way banks process checks.  It is the biggest change to check processing in nearly 50 years.

Currently banks rely on physical transportation such as couriers, trucks and airplanes to deliver checks between banks for payment.  This means there is a potential delay in delivery and check payment due to unexpected circumstances such as weather, traffic, including natural and other disasters.

The new Check 21 legislation will improve the efficiency and security of the check payment system through the use of electronic digital image technology.

 Check 21 allows banks to pay checks electronically through the use of digital images or to continue to pay checks using the current paper based method.  This legislation allows banks to replace the original paper check with a digital image of the original check.  This digital image of the original check or substitute check is the legal equivalent of the original check and is accepted by auditors, accountants, courts and the IRS.

Check 21 requires that all financial institutions in the US accept and process the digital image checks as of October 28, 2004.

When you write a check it may be handled by several financial institutions before it actually pays against your account.  This is why in the past you were able to ‘float’ money, that is, write a check and not have the funds to cover the check for a day or two.  Not anymore!  Any one of the financial institutions that handles your check may choose to replace the original check with a digital image of the check. 

The time that the money will be withdrawn from your account can immediately which means you better have the money to cover the amount of the check or you will end up with an overdraft charge against your checking account and the person to whom you wrote the check will receive notice that you have written an ISF check (Insufficient Funds).

If your original check is not returned to your bank by other processing banks, it will not be returned to you.  Instead, you will receive a substitute check with your monthly statement that is a digital image of your original check.

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