Check 21: What Does it Mean to You?

On October 28, 2004, the federal Check Clearing for the 21st Century Act went into effect. Check 21, as this act is known to legislators and practitioners, is designed to expedite the check clearing and banking system used in the United States. As a practical matter, Check 21 seeks to make the check clearing process faster and more efficient by mandating the acceptance by all banking institutions of electronic checks. By allowing banks to remove the paper check from circulation and replace such with an electronically produced and processed “substitute,” Congress has heeded the requests of banks and other credit institution by eliminating the need to manually send the actual paper checks along the entire route of banks that a check may take in order to clear.

Check 21 institutes the aforementioned by eliminating the need for banks to request  permission of its customers to process checks electronically. Prior to Check 21, it was not uncommon for individual banks to seek such permission, but it could only be extended to the bank on which the particular customer’s check was drawn, and not every bank through which a check may pass through on the route taken to clear. By requiring banks to accept electronic substitutes and eliminating the customer permission requirement, Check 21 may ultimately save the banking system substantial time and money by virtue of getting rid of the need to store and transport millions of paper checks.

Should a customer or bank desire to keep receiving paper checks, Check 21 allows for the sending of the “substitute” checks. In order to satisfy Check 21's requirements, such substitute check must contain all information contained on the original check, in which case it will serve as a bona fide negotiable instrument and the legal equivalent of the original.

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Disclaimer

This article is designed to provide a basic understanding of concepts of the law. The law, however, is very much subject to change and to interpretation by different courts. Additionally, the applicable law varies from situation to situation. Accordingly, this article should be viewed as educational in nature, and not to be considered as either legal advice or a substitute for competent advice from a qualified attorney. Rubin & Levin, P.C., and the author of this material encourage that you seek independent legal counsel to address any questions pertaining to particular issues or situations which you may encounter.