Consumer Affairs Programs and Services

Check Clearing for the 21st Century Act (“Check 21”)

Albany County Consumer Affairs Urges Residents to Be Wary of New Bank Fees

Under a federal law that went into effect in 2004, called Check Clearing for the 21st Century Act, or “Check 21,” you no longer receive your original paper checks back from their bank with their monthly statement.

Under Check 21, original paper checks will be held or destroyed by the bank of the person it was written to. Banks will have an electronic image of the check and can issue a special copy called a substitute check, which is a legal equivalent to the original check. However, the law does not prevent banks from charging a fee for substitute checks.

What Consumers Should Know about Check 21:

• Checks will clear sooner, increasing the risk that a check will bounce if funds are not in the account when the check is written.
• Banks will save approximately 2 billion dollars a year on processing checks because of Check 21, but the law does not require banks to share these savings with consumers.
• Banks will have new opportunities to charge fees. Check 21 does not cap the fee that banks can charge for a substitute check.
• When a substitute check is provided to a consumer, the consumer has a right to have funds re-credited to his or her account in 10 business days, if the check is paid twice, paid for the wrong amount, or paid in error. The regulations restrict the right of re-credit only to checks where the consumer was provided with a substitute check.
• Only the special substitute check will be the legal equivalent to the original check to prove payment. The copies that a bank now sends to consumers under a so-called voluntary truncation agreement, where a consumer agrees not to get the checks back, do not prove that a payment was made.
• A substitute check is not as useful as an original check. While it is the legal equivalent of an original check, it may be of any size that meets industry standards. It is not as good as the original to help determine forgery or alteration. Consumers should ask for return of substitute checks with their checking account statements, but should watch out for fees associated with substitute checks. Look for banks with low or no fees for substitute check-returning accounts.
• Check 21 places no limits on a bank’s use of information contained in its check images. A bank may use information to build a database using check images to determine which of its customers shop at a certain kind of retailer, or what kinds of suppliers a business customer uses.

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