NAR: Government Affairs: Check Clearing for the 21st Century Act

You may have seen recent articles about the Check Clearing for the 21st Century Act (the Check 21 Act), which took effect October 28, 2004. While none of the Act’s provisions apply just to REALTORS®, everyone who writes checks is potentially affected because banks can now clear checks much more quickly than they could before. This means that consumers and businesses can no longer count on the “float” to give them a few days to deposit money in their checking accounts to cover outstanding checks. Banks are likely to be collecting a lot of bounced check fees. Buyers of real estate who write checks for earnest money deposits and at closing are, of course, among those affected.

The new Act creates a new kind of negotiable instrument called a substitute check, which is a paper copy of an original check. A substitute check must be accepted on the same basis as the original check. While no bank is required to accept checks in electronic form, banks do have to accept substitute checks. A bank is able to clear a check faster because it no longer has to transport the original check to the bank holding the account. Instead, it can send all the information from the original check across country electronically, have its branch or other partner print out a paper substitute check, and present it to the bank that has declined to accept electronic checks.

• If you want to read more about the Check 21 Act, click on this link to the Federal Reserve Board’s “Frequently Asked Questions” about the Act:
  http://www.federalreserve.gov/paymentsystems/truncation/faqs.htm

• The Fed has also issued a consumer guide on the Check 21 Act:
  http://www.federalreserve.gov/pubs/check21/consumer_guide.htm

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