Dealing With the 'Check 21' Banking Law

How to avoid bounced checks, fees and other banking pitfalls

Checkbook with several checks removed
Check 21 Law Changes How Banks Handle Checks. Paul Morigi/WireImage

A sweeping new federal banking law known as “Check 21” will go into effect beginning October 28, speeding up check processing and putting consumers at risk for more bounced checks and fees, warns Consumers Union. The consumer group is advising consumers to keep a careful eye on their bank statements in the coming months and issued a set of tips to avoid some of the law’s potentially negative impacts.

“Check 21 will be a boon for the banks who will save billions of dollars once it’s fully implemented,” said Gail Hillebrand, Senior Attorney with Consumers Union’s West Coast Office in a CU press release. “Consumers could end up losing out if they’re not careful and if banks use the new law as an excuse to bounce more checks and collect more fees.”

Starting October 28, 2004, consumers will discover that their bank account statements will come with fewer – or perhaps none – of their canceled paper checks, as banks begin to process checks electronically. Consumers will enjoy less “float,” meaning that the checks they write will clear much faster. Under the new law, checks could clear as early as the same day, but banks won’t be under any obligation to make funds from checks that consumers deposit into their accounts available any sooner. That could mean more bounced checks and more overdraft fees paid by consumers.

Banks maintain that the law will be implemented gradually, but consumers will begin to experience its effects in the coming months as more and more banks and merchants take advantage of electronic processing and other provisions of the law. So even if a consumer’s bank doesn’t implement Check 21 right away, another bank or merchant that processes the consumer’s check might choose to do so.

That means the original check may never be returned to the consumer’s bank so the consumer won’t receive the canceled paper check in their bank statement. And any check the consumer writes might clear as early as the same day.

Consumers Union is advising consumers to review their bank statements carefully to get a better sense of how Check 21 is affecting them and offers the following tips to avoid its potential pitfalls:

  • Expect the checks you write to clear faster, but not your deposited checks: Don't write a check unless the funds are already in your account.
     
  • The checks you write will clear faster, but banks aren't required to speed up the time when they make funds available from checks that you deposit.
     
  • Most banks will credit checks you deposit into your account in one day if the check is local. Deposits that are made through ATMs can take an extra day to be credited to your account.
     
  • And out-of-town checks you deposit can take additional days to be credited to your account.
     
  • The best way to ensure that your paycheck will be deposited quickly is to arrange for direct deposit through your workplace. Social Security check recipients can also arrange for direct deposit. (Note: starting in 2013, Social Security stopped issuing paper benefit checks.)
     
  • Ask for a “recredit” right in writing if your bank makes a check processing error: If a check you write is paid twice, or paid for the wrong amount, or something else goes wrong with your checking account, you may have the right to “recredit” under Check 21. This “recredit” right means that you are entitled to have the funds returned to your account within 10 business days unless the bank proves that there was no error.
     
  • If something goes wrong with your checking account, make a written request that your bank recredit the funds to your account. Your bank can avoid the 10-day recredit deadline if you did not receive a substitute check.
     
  • Ask for a substitute check if there is a problem with your account involving a check: Check 21 restricts recredit to consumers who were provided with a substitute check. If there is a problem with your account involving a check, always ask for a substitute check, which is a special kind of copy of your paper check. If you now get your original checks back, you could ask for an account that returns substitute checks every month. If your bank charges too much for an account that returns substitute checks every month, look for another bank.
     
  • Find out how your bank plans to treat you under Check 21: Not all banks plan to implement Check 21 in the same manner. Find out if your bank will give you a substitute check if you ask for one and if it plans to charge customers an extra fee for a substitute check. And find out if your bank places a hold on your deposits so you can take steps to avoid bouncing checks and paying overdraft fees once the checks you write start to clear more quickly under Check 21.

A fact sheet on the "Check 21" law is available at: 
http://www.federalreserve.gov/paymentsystems/regcc-faq-check21.htm

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Longley, Robert. "Dealing With the 'Check 21' Banking Law." ThoughtCo, May. 17, 2016, thoughtco.com/the-check-21-banking-law-3321081. Longley, Robert. (2016, May 17). Dealing With the 'Check 21' Banking Law. Retrieved from https://www.thoughtco.com/the-check-21-banking-law-3321081 Longley, Robert. "Dealing With the 'Check 21' Banking Law." ThoughtCo. https://www.thoughtco.com/the-check-21-banking-law-3321081 (accessed May 27, 2018).