Check 21 Law

Have you ever written a check knowing you didn't have enough money in your checking account to cover it, but sure (or at least hopeful) that you would by the time the check cleared your account? If so, you've "played the float," a practice many Americans use to manage their cash flow. Here's a heads-up: your floating days are over.

The culprit is the Check Clearing for the 21st Century Act, or Check 21 for short, which went into effect at the end of October, 2004. Here's what you need to know to avoid incurring bounced check fees.

How Check 21 Affects You

The thing you'll notice first under Check 21 is that if you've been receiving your canceled checks back from your bank with your monthly statement, you probably won't be for much longer, or you may receive a mix of original checks and copies. That probably won't break your heart, but this might: checks you write could clear your bank in hours instead of days, depriving you of the "float" you may have relied on.

Under Check 21, banks can make digital copies of your checks, transmit your check information electronically through the banking system, and destory your original checks.

The real impact of Check 21 is that your check information will now "clear" electronically and with great speed in many cases. If you're not careful, you could be hit with numerous bounced check fees. Making the matter worse is the fact that banks are not required to credit your account any more quickly for checks you deposit into your account, creating a double whammy for those who cut things close.

Consumers Union and the Consumer Federation of America estimated that by mid-2005, we could be bouncing nearly seven million more checks and paying $170 million more in fees every month, thanks to Check 21.

Four Ways You Can Protect Yourself from Check 21

1. You probably know that just because you make a deposit doesn't mean the money is available to you right away. Banks can legally hold the sum for several days before letting you draw against it. This is going to be more important to you than ever because checks you write will clear more quickly than checks you deposit. Ask your bank for their policy on when funds you deposit into your account become available, and plan accordingly.
2. Don't write a check unless you know you have enough available funds in your account to cover it immediately. It could conceivably clear before you get home from shopping.
3. One potential problem with the new law is that banks could process both the paper copy of your check and the electronic copy, resulting in your bank account being charged twice. Ask your bank to return "substitute checks" instead of just digital copies with your bank statement each month. If you've voluntarily elected to receive copies of your checks instead of the originals, those copies do not protect you legally from errors or act as proof of payment. Only the so-called "substitute checks" can be used for legal purposes. A statement to that effect will appear on the substitute checks. If your bank charges a high fee to get substitute checks, find a new bank.
4. Because it's so easy now for a bank to charge your account twice for the same check (once for the paper copy and once for an electronic copy), it's more important than every to balance your checkbook every month. For step-by-step guidelines on how to do it quickly and efficiently, see Balancing Your Checkbook.