You might not have been paying attention, but 28 October, 2004 marks an important change in the way that paper checks and electronic checks are processed and how long it takes for funds to transfer. The most immediate change is if you've been using a float when you write checks, writing them with the assumption that you have "seven to ten days for the check to clear". Surprise, that's no longer true any more! One place you can learn more about the Check Clearing for the 21st Century Act (aka Check 21) is on the Federal Reserve Board's Check Clearing for the 21st Century Act / Check 21 Web site, chockablock with useful information.

As they say, Check 21 "is a federal law that is designed to enable banks to handle more checks electronically, which should make check processing faster and more efficient. Today, banks often must physically move original paper checks from the bank where the checks are deposited to the bank that pays them. This transportation can be inefficient and costly."

The Feds continue their explanation with this Q&A:

How will Check 21 make check processing more efficient?

Instead of physically moving paper checks from one bank to another, Check 21 will allow banks to process more checks electronically. Banks can capture a picture of the front and back of the check along with the associated payment information and transmit this information electronically. If a receiving bank or its customer requires a paper check, the bank can use the electronic picture and payment information to create a paper “substitute check.” This process enables banks to reduce the cost of physically handling and transporting original paper checks, which can be very expensive.

Read the material on the Fed site about Check 21 and it really sounds like it's just about using substitute checks to speed up processing, but the New York Times has a good article in which they report that some consumer groups are upset that the Check Clearing for the 21st Century Act doesn't actually change the time it takes to process and clear checks deposited into an account and that the mismatch is consumer unfriendly. Further, there's also more potential for fraud once Check 21 makes it the law for your original checks to be destroyed and replaced by substitutes which might well end up being poor, hard-to-read copies.

The article states: "Law enforcement officials express concern that check images, which include a copy of the bar code, will be easier to replicate, and that the absence of the original document will frustrate efforts to use fingerprints and other standard methods to catch criminals."

However this plays out, today's the day that Check 21 starts. So take a deep breath and let's see how it all plays out.