Check 21 – The New Way of Depositing Checks
In 2004 the Check21 Act took effect allowing retailers to electronically process and deposit checks rather than having to deal with the paper document itself. During this process, the retailer will convert the check into an electronic file that is sent to the bank rather than having to physically deposit a paper check. The bank no longer needs the actual check in order to process the transaction. In many cases the check itself is returned to the customer during the transaction since the retailer has no need to keep it. While there was some grumbling initially on the part of customers, the process of depositing checks in this way has quickly become the norm.
Since many Americans still use checks to make payments, it is a good idea for businesses to incorporate electronic check processing into their day to day business. One of the advantages of Check 21 processing is how quickly the funds are withdrawn from a customer’s account and deposited into the retailers. This greatly reduces the chance for bounced checks due to insufficient funds. In the past, it was not uncommon for retailer to hang onto a check for a few days since they were often deposited only once a week. It would then take the bank several days to process the payment allowing plenty of time for the customer’s account to become overdrawn.
Check 21 processing also greatly reduces the risk of fraud when using checks in a transaction. Oftentimes, the same type of security measures and consumer protection that is offered to credit card holders also applies to checks process electronically. Once they have become accustomed to the process of handling check transactions in this way many customers have found that it is a much more convenient way of using checks to purchase items. Since the funds are withdrawn so quickly, it is much easier to keep track of the funds coming in and out of their checking accounts.
While it is still possible for business to deposit checks the old way, it is much more efficient and effective to utilize processing under the Check 21 Act. A retailer gets their money much more quickly rather than having to wait days or weeks for the check to make it to the bank and for the bank to go through the slow process of withdrawing and depositing funds. Although more and more consumers are utilizing credit and debit cards, there is still a large portion of the population that relies on traditional paper checks to make purchases.