I see from my mail that lots of folks have questions and comments about a federal law that will take effect Oct. 28.
The Check Clearing for the 21st Century Act, or Check 21, is supposed to make check processing faster and more efficient because it allows banks to replace paper checks with legal substitute checks that are made from digital images of the originals.
Sounds simple, right?
The problem is that the law doesn't demand that banks do the digital thing -- it just says they're allowed to. So basically, banks can do whatever they want, and you won't have a choice except to switch to another bank if you're not happy with how yours handles your checks.
So what are the banks' options?
Well, after Oct. 28, Bank A could say it won't be sending original canceled checks back to you anymore. Instead, you'll get digital images, which is what many banks already do and will continue to do under Check 21.
Bank B might inform customers that it has decided to continue sending back canceled paper checks.
Bank C might do a combination of the above -- send some original canceled checks, some copies and some "substitute checks," which are paper copies of the front and back of the original check with all the endorsements.
And why the mix, you might ask?
Under Check 21, your original check may pass through a bank in the check-processing chain and be converted to a digital image, points out Gail Hillebrand, senior attorney for Consumers Union. It's possible that you could write a check to someone and that person's bank might replace your check with either a digital image or a substitute check, which all banks must accept as if it were the original, Hillebrand said.
At least Check 21 requires banks to tell you what they plan to do if you currently receive canceled checks with your monthly statements. The disclosure must spell out what a substitute check is and the new protections for this type of check.
Still confused? Here are the answers to some of the most frequently asked questions I've received:
Q Will banks be required under Check 21 to keep checks archived for a minimum length of time?
A Nope. In fact, the Federal Reserve Board says banks are not required to keep your original check for any specific length of time, and Check 21 does not impose any new requirements. However, John Hall, a spokesman for the American Bankers Association, says banks generally, by state law, keep your original checks, or the images of your checks, for seven years. Retention schedules vary by state, Hall said. I would check with the bank to see how long they archive checks and in what form (paper or electronic). Since the whole point of the law is to reduce the back-and-forth transportation of paper checks, in many cases, your original checks will probably be destroyed.
Are banks in agreement on which type of check will serve as proof of various payments (e.g., charitable contributions)?
Hall says you shouldn't be worried that without your original canceled check you won't have proof of payment. For decades, the Internal Revenue Service, landlords, retailers and other businesses have accepted copies and images of checks as proof of payment, he said.
And remember, under Check 21, a substitute check is the legal equivalent of your original check. But if you are worried about this issue (and frankly, I wouldn't always trust that a copy will work), then talk to your bank. Find out if you will be able to get a "substitute check" if or when you may need one.
If the Check 21 law says funds will clear immediately, then why are funds I deposit still subject to a hold? I am a businessman and receive checks that are substantial in amount that are held, sometimes for up to seven days.
Check 21 doesn't cover how long it takes for a deposited check to clear. That's another federal law, called the Expedited Funds Availability Act. Federal law mandates that banks make funds available for local checks within two business days and within five business days for non-local checks. "As a general rule, most banks make funds available much faster, within one day for local checks and in one or two days for non-local checks," Hall said. But as always, there are exceptions, he added. For example, holds may be longer for checks of more than $5,000 or if certain customers are repeatedly overdrawn or for new accounts. "These hold times help fight check fraud," Hall said.
I want my checks back!
I hear you. Sometimes it's hard to let go of the way things were. But with the passage of Check 21, you probably won't be getting all of your original checks back. So, my dear, just deal with the fact that times have changed, or pay with cash (which of course has its own headaches).
If you still have questions, and I'm sure you will, please contact your bank.
Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and online at www.npr.org. Readers can write to her at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071 or send e-mail to firstname.lastname@example.org. Comments and questions are welcome, but please note that they may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.