THE COLOR OF MONEY
Bank must let you know if digital copies will replace canceled checks
By Michelle Singletary
I see from my mail that lots of folks have questions and comments about a new 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 your paper check with legal substitute checks that are made from digital images of the originals.
Sounds simple, right?
But the law doesn't demand that banks do the digital thing — it just says they can. 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 your present bank handles canceled checks.
So what are the options that your bank has?
Well, after Oct. 28, Bank A could say it won't be sending your original canceled checks 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 to do as it always has and send you your canceled paper checks.
Bank C might do a combination of all of the above — send some original canceled checks, 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 stop at any bank in the check-cashing processing chain and be converted to a digital image, according to 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 currently 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 images of your checks for seven years. Retention schedules vary by state, Hall said. I would check with your bank to see how long they archive your 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.
Q. Are banks in agreement on what type of check will prove various payments (e.g., charitable contributions)?
A. 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.
Q. I want my checks back! What can I do?
A. 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 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.
