If you’re accustomed to getting your checks back with your bank statement at the end of the month, get ready for a big change.

Starting Thursday, a new law goes into effect which will completely change what happens to the checks you write and how they get credited to your account.

Check 21 is a sweeping new federal law that not only takes away your ability to get back the original paper checks you write, but changes how those checks clear the system. The result is that you’ll be much more likely to bounce a check.

Up until now, when you write a check, it typically takes a day or so for the merchant to deposit the check into his bank account, and for his bank to then talk to your bank, return the check and deduct the funds from your account to pay for whatever you bought. In fact, it could take a week or more for the funds to “clear” your account, and that week is known as “float.”

The new Check 21 law eliminates the float by allowing banks to send an electronic image of a check to each other rather than the check itself. The result is that checks clear much faster, and sometimes on the same day. That means you should no longer write a check unless you already have the funds in your checking account to cover the amount.

But what happens if something goes wrong? The new Check 21 law has created something called a “substitute” check and it is quite different from a plain old copy of a check.

A substitute check offers you specific legal protections, including the Right to re-credit disputed funds. If there is an error, or a check has been paid twice or paid for the wrong amount, with a substitute check you have the right to be re-credited to your account up to $2,500 within 10 business days. You may not have that right if you get a plain copy of your check.

What can you do to protect yourself with this new law? Make sure you specifically ask your bank to give you substitute checks with your statements. Don’t ask for plain check copies since they may not carry the same legal protection.

Also, monitor your monthly statements closely — balance that account each month — to be sure your checks are clearing for the right amount. If you’ve bounced a check in the last two years, consider asking your bank to add not-sufficient-funds that’s NSF insurance each month to your checking account so if you do write a check and it clears before you have enough cash in the account the check will still get paid.

Of course, Check 21 means banks can destroy your original check. It also means they’ll save money on clearing checks — not that the savings will be passed onto you.

Finally, even though the check is clearing faster, there is no requirement in the new law to have the bank credit a check that you deposit into your own account faster, so you may still have to wait days to tap funds in your account.


About CHECK 21 from the Federal Reserve
About CHECK 21 from the consumers union