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Check 21


FinancialWhen it comes to your money, things have certainly changed over the past few decades. Automated Teller Machines (ATMs) are a way of life and provide quick and convenient access to family funds at all hours of the day and night. Debit cards are quickly replacing cash as the preferred means of paying for a purchase from something as large as a plasma television to your lunch at the fast food drive thru. And with rising postage costs, bill payment by mail is falling by the wayside in favor of online bill payment either directly through a utility company or retail store's website or via your bank's online bill payment option. The one thing that all of these options have in common is the electronic transfer of money between bank accounts. Although it poses possible concerns regarding account security and privacy, it has become the way we move money in the world today.

Over the past few years you may have noticed some changes in the way your bank provides your monthly account statement or how quickly that check for your monthly mortgage makes its dent in your checking account. Many of the methods for electronically moving money were standardized when the government and banking industries established the Check Clearing for the 21st Century Act or "Check 21"—a set of methods and standards for establishing a more efficient movement of money in the twenty-first century. Established on October 28, 2004, Check 21 basically increases the efficiency of banks and transactions by eliminating the need to physically transport original paper checks from the bank where the checks are deposited to the bank that pays them.

The Federal Deposit Insurance Corporation (FDIC) notes some of the ways you, as a consumer, may have seen the effects of Check 21:

  • If you were accustomed to getting your canceled checks back with your monthly bank account statement, you may now be getting a "substitute check." A substitute check is a high-quality paper reproduction of both sides of your original check. A substitute check is a legal equivalent of the original check.
  • Under Check 21, your bank is not required to return your original checks to you (in many cases, after a "substitute check" is created in electronic form, the original check is destroyed). Check 21 ensures that you have the same legal protections when you receive a substitute check from your bank as you do when you receive an original check.
  • If you ever notice a problem with a substitute check, contact your bank as soon as possible. Check 21 provides a special process that allows you to claim a refund when you receive a substitute check from a bank and you believe there is an error due to the substitute check. The FDIC states that, in general, you should contact your bank no later that 40 days from the date your bank provided the substitute check or from the date of the statement that shows the problem.

FinancialWith the advent of Check 21, bouncing a check became much easier. In the "old days" when checks were physically transported from bank to bank via airplanes or ground transportation, there was usually a "float" time an account holder had before the funds were actually withdrawn from his or her account. By eliminating the need to physically move checks from one bank to another for processing, the time between writing a check and seeing the funds deducted from your checking account has significantly decreased. The moral of the Check 21 story is, be certain funds are present in your checking account before writing a check. The days of being able to squeeze in an upcoming paycheck deposit "before the check clears" are gone for good.

In addition, the Federal Reserve notes that there are times when you write a check to buy something at a store or to pay a bill and your check is used as a source of information to make a one-time electronic payment from your account. This procedure is referred to as an "electronic check conversion" and your paper check is not processed as a check. Instead, the payment is debited from your account as an electronic fund transfer. You'll know the transaction was handled as an electronic check conversion if your check is stamped "VOID" and is handed back to you with a receipt. You still have rights with electronic check conversion including the right to have your bank investigate errors.

So even in our handling of money, the digital age is upon us. The best piece of advice is, and has always been, to keep diligent records of your financial transactions and compare your receipts to your monthly account statement. Then, if an error does occur, you'll be on top of the situation and have all the documentation you need to remedy the problem with your bank. It's your money—handle it with care!

Federal Deposit Insurance Corporation—
The Federal Reserve Board—

Articles are provided for the general interest of our readers. Gerber Life Insurance is not responsible for any content and recommends that you consult the appropriate professional with any questions or concerns you may have concerning any financial or health related issues.

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