Fact Sheet 30:
Check 21:
Paperless Banking

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Copyright © 2004-2016
Privacy Rights Clearinghouse
Posted October 2004
Revised July 2015

1. Introduction
2. About Check 21
3. What Check 21 Means to You
4. What You Can Do
5. “Electronic Check Conversion:” What You Need to Know
6. Tips for Check Writing in a Paperless Era
7. References

1. Introduction

When you write out a check, chances are you will never see that check again. That’s because your bank may never get the actual check you wrote. Instead of your original checks, you may see what’s called a “substitute check,” that is, a copy of your original check

Under the Check Clearing for the 21st Century Act, or “Check 21” for short, you may not receive copies of the cancelled checks you write each month.  Your checks also clear much faster than in the past.

2. About Check 21

Why was Check 21 passed by Congress?

Check 21 is viewed as a way to make check processing easier and less expensive for the financial industry. The old method required that your check be physically moved from one point to another. For example, if you wrote a check to a department store, that check was deposited into the store’s bank account. The check was then physically transported, usually by truck or by air, back to your bank. The check was then “cleared,” which means the funds were taken out of your account and transferred into the store’s account.

The route was not always directly from Point A (the store) to Point B (your bank). As a minimum, checks had to be processed through a Federal Reserve bank. 

Under Check 21, the check you write no longer has to move beyond the store’s bank. That bank, instead of transporting your check along with thousands of others included in a days’ receipts, may transmit an electronic image of your check.

Must all banks process checks electronically under Check 21?

Check 21 gave banks the option of processing checks electronically. The law facilitates check truncation by creating a new negotiable instrument called a substitute check, which permits banks to truncate original checks, to process check information electronically, and to deliver substitute checks to banks that want to continue receiving paper checks.

A substitute check is the legal equivalent of the original check and includes all the information contained on the original check. The law does not require banks to accept checks in electronic form nor does it require banks to use the new authority granted by the Act to create substitute checks. 

3. What Check 21 Means to You

What are substitute checks?

A substitute check is a paper copy of the front and back of your original check. This copy is made by the bank that receives your payment.

What happens to my original check?

Your original check is kept by the bank that first receives it. Originals may be destroyed or kept on file, but that’s up to the receiving bank.

Can I dispute a payment using a substitute check?

Yes, according to the Federal Reserve Board, a substitute check is legally the same as your original check. A substitute check should include the statement:

This is a legal copy of your check. You can use it the same way you would use the original check.

Not all copies of checks are official “substitute checks.” If you get copies of your checks each month on a single page, this is called an “image statement.” It is not the same as a “substitute check” and may not carry the same legal rights.

What can I do about errors?

Check 21 created what is called an “expedited recredit” procedure if a check is paid twice or paid for the wrong amount. Check 21 says you have a right to a refund of up to $2,500 within 10 days. In case of errors, you have to complain to your bank.

What are the disadvantages of Check 21?

First, it may not be easy to prove fraud if someone alters you check. Because “substitute checks” are copies, changes made to the original may be harder to detect. Second, you can no longer count on a “float” of a few days between the time you write a check and the time the check clears. This threatens to result in many more “bounced” checks and costs to consumers in overdraft charges.

Can my bank still put a hold on a check I deposit?

Yes. Check 21 does not change the hold time for your deposits. That's controlled by another law, the Expedited Check Funds Availability Act, with details spelled out in Federal Reserve Regulation CC.  

4. What You Can Do

Can I opt-out of Check 21?

No. The choice about whether to follow Check 21 – or even whether to provide substitute checks -- is up to your bank, not you.

Should I get overdraft protection?

Because checks will clear more quickly under Check 21, it is easier to bounce a check. Many banks are marketing overdraft protection as a consumer protection in a paperless banking age. Overdraft plans may be marketed under consumer-friendly names like “courtesy overdraft” or “bounce protection.”  

5. Electronic Check Conversion: What You Need to Know

Check 21 is just one more step toward a paperless business world. You may have already noticed that some checks you write are never returned with your monthly account statements. That’s because checks you write can be used only as a source of information to access your account. This is allowed by the Electronic Funds Transfer Act (EFT Act), the same law that covers ATM and debit cards.

How is “electronic check conversion” different from Check 21?

Check 21 allows banks to process all payments electronically without physically sending the check from Point A to Point B. An electronic check conversion allows a merchant, a credit card company, or others who receive your checks to extract information from the check and process the payment electronically. You have to get notice that your payment will be processed electronically.

Like Check 21, electronic check conversion means your payment can be processed more quickly. If you don’t have enough money in your account at the time, you run the risk of having the check bounce. A merchant that processes your checks electronically is required to give you notice that it is doing so. It must also notify you of fees charged for returned checks. A returned check could cost you plenty, both in fees paid to the merchant as well as overdraft fees charged by your bank

6. Tips on Check-Writing in a Paperless Era

You can take these steps to minimize your risk and avoid hefty fees:

  • Watch accounts closely. If you find an error, immediately notify your bank that you want a “recredit,” that is a return of your funds. Make your request in writing. Follow-up to make sure the funds have been returned in the 10 days required by Check 21.
  • Learn to live without the “float.” Expect that any check you write will clear almost immediately. Make sure you have enough funds in your account to cover any check you write.
  • Closely review your bank’s terms and fees for overdraft protection.
  • Pay by debit or credit card if you don’t like the idea of your check being processed under electronic conversion, but be aware of the risks of debit cards. 
  • Write checks only to merchants or others you know and trust. Remember, anyone who receives a check from you also receives the information necessary to access your account.

7. References

Federal Government Sources

Privacy Rights Clearinghouse Publications



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