The Attorney General provides Consumer Alerts to inform the public of unfair, misleading, or deceptive business practices, and to provide information and guidance on other issues of concern.

   CHECK 21

The Check Clearing for the 21st Century Act, a 2003 federal law popularly known as Check 21, will take effect on October 28, 2004. Check 21 supersedes all inconsistent federal and state laws. Under Check 21, banks may destroy original paper checks and instead transmit electronic images of the check through the check clearing process. If a consumer or a bank insists on receiving the original check, Check 21 allows the use of a "substitute check" in place of the original.

The primary goal of Check 21 is to end the practice of physically transporting original paper checks by authorizing financial institutions to electronically transfer information about checks. Check 21 encourages banks to enter into voluntary agreements with one another to accept electronic images instead of checks.

Where another bank or a consumer insists on a paper check, Check 21 allows the bank or consumer only a "substitute check," not the original paper check.

"Substitute Check"

A substitute check is a reproduction of the original check that contains a legible image of the front and back of the original check and is considered the legal equivalent of the original check for any and all purposes. Check 21 does not require a minimum size, so the substitute check may not be the same size as the original. Some financial institutions are already sending consumers copies of checks that are small and difficult to read.

As a result of Check 21, original paper checks will no longer be available for inspection by consumers in most cases. Thus, it is likely to become substantially more difficult to detect and prove check forgeries and alterations. Potentially important clues like fingerprints and pressure points will not be available for expert analysis or evidentiary purposes. Other security features embedded in original paper checks like paper based watermarks and micro-printing will not survive imaging and reproduction.

Check 21 will also reduce the "float" time that allows consumers to put money in their accounts to cover a previously written check before it clears. Failure to realize that checks will clear faster than ever before may result in overdraft and check-bouncing fees.

Consumers should be alert that criminals are trying to take advantage of banking practices that allow companies to negotiate unsigned paper checks. Through unsigned checks and fake authorizations for automated withdrawals, thieves can walk away with your money. It is very likely that these law violators will take advantage of the Check 21 changes to unleash new scams

Do not ever give personal financial information, like bank account numbers, Social Security number, driver's license or state identification number, date of birth, or mother's maiden name, to someone who calls or otherwise contacts you. If you are concerned the information is legitimately necessary, you should contact the person or company at a number or location you independently know is reliable. For instance, do not use the number the person requesting the information provides, instead go to a billing or statement and independently obtain the number to contact the company.

It is more important now than ever that consumers promptly and thoroughly review all financial statements. If there is a mistake, send written notification of the problem. If a consumer learns that there is a problem and delays giving notice to the bank, the bank may not be liable for additional losses caused by that delay.

Check 21 creates expedited re-credit rights for losses that consumers experience as a result of the use of a substitute check. However, a consumer only has 40 calendar days after either the bank mails a statement to the consumer or the substitute check is made available to the consumer, whichever is later, to demand a re-credit.

If a consumer is unable to file a claim for a re-credit by the forty-day deadline, due to extenuating circumstances--like extended travel or illness--the law allows the consumer an additional "reasonable amount of time" to file the claim.

If a consumer makes a proper claim, the bank must investigate the claim and make any necessary re-credit to the consumer’s account. If the bank needs more than ten days to investigate and resolve the complaint, the bank must re-credit the consumer’s account for an amount up to $2500 while it completes its investigation. The bank must re-credit any remaining balance greater than $2500 no later than 45 calendar days after the business day the consumer submits the claim. A bank cannot ask a consumer to waive the rights to a re-credit of the account.

A consumer may file a lawsuit within one year of when the consumer first learns (or should reasonably have learned) of a problem involving a substitute check. A bank cannot ask the consumer to waive the right to claim damages under the Act.

For further information:

The Federal Reserve Board's Frequently Asked Questions about Check 21 at: http://www.federalreserve.gov/paymentsystems/truncation/faqs.htm

An article on the new Check 21 federal law is available from the National Consumer Law Center at: http://www.nclc.org/initiatives/check21.shtml

Customer Assistance Group

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800-613-6743

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E-mail address: customer.assistance@occ.treas.gov