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Electronic checking speeds up

Thanks to the electronic age, a new federal program called ‘Check 21’ signals a change in 21st Century banking. It’s expected to bring much faster check processing and makes copies of checks ‘ called ‘substitutes’ ‘ made by the bank as good as the original.
Consumers whose banks are returning check images each month rather than original checks may notice little difference under Check 21, said Diana Timberlake, senior vice president at Community First Bank. Processing electronic checks will be much faster than the current system, where checks arrive by mail rather than electronically.
Check 21 is an alternative method of moving checks from bank to bank, which means natural disasters or problems in the transportation system won’t slow down payment.
But that also means consumers must not rely on the few days it can now take for a check to be delivered and the money withdrawn from an account.
‘Which means the money had better be in the bank so the check is covered,’ Timberlake said. But that’s not really a change.
‘Nobody should be writing checks before the money is in their account,’ Timberlake said. ‘It’s against the law to do that.’
Nevertheless, the number of checks that ‘bounce’ will likely increase until consumers are used to the quicker process, and traditional return-check fees will be charged to the check writer.
Check 21 takes effect Oct. 28.
‘Think of the process as the financial world equivalent of sending your mother an electronic picture of your new car the moment you get home, as opposed to taking a picture and mailing it to her,’ said Viveca Y. Ware, director of the Independent Community Bankers of America.
‘It’s the same picture, just as real as a print copy, but the picture gets there in minutes instead of having to be developed and mailed.’
After a check is written, the recipient deposits it in his or her bank and that bank converts it to an electronic version. Then, it is sent to your bank to be deducted from your account, Ware explained. The process will be quick. ‘Check writers will not be able to count on the usual delay between when a check is deposited, and when funds are withdrawn from the account to pay the check,’ she said.
The new program creates a more efficient check processing system, Timberlake said, without changing the way consumers write checks.
After Check 21 takes effect, some monthly bank statements may contain a mixture of canceled checks, some substitute checks, and some originals. Ware said, ‘Eventually, more substitute checks will replace your originals.’
At Farmers State Bank in Lanesville, corporate secretary Pam Schoen said customers there are already receiving ‘image’ checks with their bank statements. Those are different from ‘substitute’ checks in that image checks don’t contain all the legal information necessary for a check to be used in a court case.
‘When it’s necessary, we can provide the substitute check,’ she said.
‘This all stems from 9-11, when there was a delay in everyone receiving their checks back,’ Schoen said.
When the terrorist attacks grounded air travel, the processing of paper checks was disrupted, which speeded up development of a new system for check processing.
By December 2001, Federal Reserve Board Chairman Alan Greenspan proposed the change to lawmakers on Capitol Hill. The Check Clearing for the 21st Century Act, also known as Check 21, was signed into law by President George W. Bush on Oct. 28, 2003. It takes effect Oct. 28, 2004.
Banks that are not equipped to receive and process electronic check images may accept and process substitute checks instead of the original paper checks.