Check 21
The Check Clearing Act of the 21st Century (Check 21) went into effect in 2004. Check 21 is designed to improve the overall efficiency in the nation’s payment systems by reducing the physical transport of paper checks. This applies to all checks. Under Check 21 a check written can be imaged (truncated) and the image can be electronically sent for clearing to the bank on which the check was drawn. What does this mean to you?
If you write a check at a grocery store today the store will likely send that check to the bank tomorrow in their deposit. The bank will process the store’s deposit and then (assuming your check is drawn on a different bank) will send your physical check to the Federal Reserve (Fed) who will then send your check to your bank so that the money can be deducted from your account. That whole processing of sending checks around is usually accomplished with the help of planes, trains and automobiles and can take 2-5 days depending on the banks involved.
Under Check 21 when you write your check at the grocery store the store will have the legal ability (and could have the technology) to make an electronic image of your check and submit it to their bank in a deposit. That could, theoretically happen within minutes or hours of when you write the check. But let’s assume that the store sends your physical check to the bank. The bank can make an electronic image of your check and instead of sending it by plane to the Fed and then to the bank it was drawn on it will send the image electronically. Your bank will then print the Image Replacement Document (IRD) and use that IRD to take the money out of your account. Taking what used to be a 2-5 day check clearing process and turning it into only a few hours or a day at the most.
What does this mean to you? It means that today when you write a check, you should expect that it may be presented to your bank account for clearing within 24 hours. Your checks will clear faster. If you are used to “playing the float” then you should know that float is going to disappear and it may start costing you in overdraft fees.
What does this mean to your Department? The banks Indiana University uses to deposit the checks we receive are taking full advantage of the electronic clearing option offered by Check 21. This means that the checks you take from our customers (students, parents, retail customers, etc.) will clear their account faster. It also means that until our customers become accustomed to the changes brought about by the Check 21 legislation, your Department may see an increase in the number of returned checks.
Want more information?
- Banking Services Presentation about Check 21 including an example of an IRD
- The Federal Reserve Board's - Frequently Asked Questions about Check 21
