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Morrill & Janes Bank

Check 21 - What This Means To You

New Law Will Reduce Check Float

Starting in October 2004, you may receive "substitute checks" with your monthly account statement. Under a new Federal law known as Check 21, substitute checks will be regarded as the original check. Congress enacted Check 21 to make check processing and payments more efficient. The law's technical name is The Check Clearing in the 21st Century Act (H.R. 1474). It became law on October 28th of last year and its provisions will be implemented over the next couple of years.

In very general terms, this law provides that electronic images of checks are now the legal equivalent of the original paper checks. Thus, once a paper check is deposited, an electronic image of the check can be used for all clearing and accounting activities.

Part of the impetus for the new law was the temporary disruption to the check clearing system that ensued from the terrorist attacks on September 11th, 2001. At the time, paper checks traveled by airplane through the clearing process, and when all air traffic was halted following 9-11, the flow of paper checks was also halted. Since electronic images of checks can be cleared through the system much the same way that a debit card transaction is cleared, the switch from paper checks to electronic image processing will enhance the stability of the banking system in the event of future transportation disruptions.

Since Morrill & Janes Bank and Trust Co. has already been returning printed versions of electronic images instead of original paper checks in our customer statements, most of the effects of Check 21 will be of little or no consequence to our customers. There is, however, one effect – the elimination of float – that will impact the way many checking account customers handle their funds.


Float – the time delay between the deposit of a check to the recipient’s account and the deduction of funds from the issuer’s account – is due to the length of time it takes a paper check to travel from the bank of first deposit back to the issuer’s bank. However, the clearing process for an electronic check image will be a matter of minutes rather than days. The big variable under the new system will be how soon an electronic image of the paper check is made rather than how far away the bank of first deposit is. Once the electronic image is made by the bank of first deposit, it will clear the issuer’s bank almost instantaneously.

Keep in mind the following: Checks will clear faster, making your account's balance more accurate; Customers will be able to find and store checks more easily and fraud will be reduced. Because checks will clear faster, banks will be able to identify fraudulent items sooner and minimize customer inconvenience.

What happens to the paper check?

Under the new system, which is being implemented in phases over the next two years, the original paper check will be stored by the bank of first deposit for a period of 60 days and then shredded or otherwise destroyed. It will never be sent back to the customer. But, the customer will be able to obtain a printed image of the original check and the images will suffice for all legal purposes.

Again, Morrill & Janes Bank and Trust Co. customers will notice little difference in the mechanics of the new system since we already provide check images in our monthly account statements. But customers who do occasionally take advantage of float time need to remember that it is now possible that checks can clear the same day they are deposited, even if the bank of deposit is a half a continent away.