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Saturday, Apr. 30, 2016

Check 21: more convenience, new risks

Thursday, November 4, 2004

A new federal law went into effect Oct. 28. Called "Check 21," it will likely change how your checking account works, and how your money changes hands when you write a check.

Under this law, digital copies of checks will have the same validity as paper ones. It will also reduce, or in some cases eliminate, the length of time between the point you write the check and when the funds leave your account. This law allows your check to be handled electronically once it has been received, and just like a debit-card payment, funds may be immediately drawn from your account.

The act authorizes the creation of a new instrument, a "substitute check" that has been imaged from the original paper version presented to the clearing bank. It has the same legal status for proof of payment as an original check. Additional merchant-written information added to the check at the time of acceptance, such as driver's license or phone numbers, will be included in the image on the substitute check.

This "substitute check" can be stored electronically, transferred electronically and then printed out whenever needed. Check 21 requires that each "substitute check" carry the legend, "This is a legal copy of your check. Use it the same way you would use the original check."

Important tips to remember when your bank implements "Check 21" changes: * It will be far more difficult to stop payment on a check. You will no longer have the luxury of time to change your mind. * No more canceled checks, so ask for substitute checks. If your bank switches to the Check 21 system, you will no longer be able to have your original canceled paper checks mailed back to you after they are processed.

Your paper checks are digitally copied and then destroyed after they are accepted as electronic transactions. Ask your bank to send you copies of these "substitute checks," which will help serve as legal proof of payment.

Fees may be charged for that service. Consumers should shop for a bank that charges low fees or no fees at all. * Watch your account closely. If your original paper check is not immediately destroyed, there's the chance it could be inadvertently run through again and credited against your account twice. Now more than ever, it is important that you keep an eye on your account for such errors.

If you spot an error or fraud, the bank must put the money back into your account within 10 business days after you notify the bank of the problem, but you may need your digitally-copied "substitute check" to prove the error and request your money back. * Don't sign up for voluntary check truncation. Your bank may ask you to agree to "voluntary check truncation." This means you give up your rights to have copies of your substitute checks returned to you.

Ask your bank about how it is handling the new regulations. Many banks have already contacted their customers about the changes. You can learn more about Check 21 at the Consumers Union Web site at www.consumersunion.org and the American Bankers Association's "Check 21 Resource Center" (www.aba.com).