FOR MORE INFORMATION: Liz Hitchcock (202) 546-9707 or Ed Mierzwinski, 202-546-9707

U.S. PIRG Urges Consumers to Investigate New Check 21 Law

Consumers will lose valuable rights on October 28 when Check 21, a new federal banking law designed to save banks money and time in the check clearing process, takes effect. Under this new law, consumers will no longer be able to request that their cancelled checks be returned with their monthly statements. Banks will instead process all checks electronically by converting paper checks into electronic images and provide consumers only with paper versions of the electronic image.

“While Check 21 allows banks to clear the checks we write to others faster, it doesn’t require banks to give us quicker access to the checks we deposit, “said U.S. PIRG Consumer Program Director Ed Mierzwinski. “That means big bounced check problems for consumers and big bounced check fee income for banks.”

Mierzwinski noted that U.S. PIRG and other consumer groups have never encouraged consumers to write checks on funds that they do not have, but warned that, “Increasingly, banks are gaming the system to encourage unintentional overdrafts that result in skyrocketing fee income. Check 21 will only make that unfair game easier for banks to play.”

In addition to its shortening of the float time on checks consumers write, U.S. PIRG pointed out the other impacts of the new law: First, Check 21 requires banks to convert checks to digital images or pictures. While consumers can continue to receive these images instead of cancelled checks, not all images are legally equivalent to a cancelled check in a dispute. Second, banks may charge extra fees to receive a special kind of copy of the check (called a “substitute check”) that is legally equivalent to the original cancelled check and which triggers an important new consumer right.

“The only way consumers will know if there is a problem with their accounts is to read their statements carefully and check everything that is returned with the statement,” added Mierzwinski. “Consumers should remember that all copies are not created equal, and that they have to specifically ask for a substitute check – not merely a copy - to legally resolve any dispute with a merchant or creditor.”

“When you use your debit card at a merchant or when a merchant converts a check at point of sale to an electronic transfer, you have a legal ten business day right of recredit in any dispute,” said Mierzwinski, “But when you have a dispute over a check that you’ve written, for example, if the check is paid twice, paid for the wrong amount, or otherwise paid in error, you will not have that same 10 business day right of re-credit unless you have received a substitute check.”

U.S. PIRG recommended that consumers take several steps to inform and protect themselves from the new law:

Only write the check if the funds are in the bank. With the use of new electronic images, banks may process a check within hours of when it was written; negating the “float time” many consumers have taken advantage of. This will likely lead to more bounced checks and overdraft fees.

Know and understand what “substitute checks” are. Under Check 21, the only legal substitute for a cancelled check is a substitute check. A substitute check is a paper copy of an electronic image of your cancelled check. Not all images provided by banks are legally the same as substitute checks. So ask for substitute checks. Substitute checks are required in any dispute to start a ten business day timetable for a bank to fix any errors in payment of a check from a consumer’s account. U.S. PIRG advises consumers to contact their bank and inquire whether or not they will be charged a fee to obtain a substitute check.

Consumers should carefully examine all bank statements. Since paper checks will be scanned into an electronic image, there is a chance that the bank may double-debit a customer’s account, posting both the original check and its electronic copy. Another problem could occur during the transfer from paper to electronic file if the amount written on the check is misread. U.S. PIRG recommends that consumers carefully track all written checks and take the time to read their bank’s monthly statement to insure that no bank errors occurred. If an error has occurred, they should notify their bank and obtain a substitute check from their bank immediately in order to prove the error.

Consumers have the right under Check 21 for a re-credit within ten days of the mistake being made. In order for a re-credit to occur they must first obtain a substitute check.

“New technology and new laws should benefit consumers as well as the banks,” concluded U.S. PIRG’s Mierzwinski. “We’ll be watching this new law closely to make sure that the banks don’t take advantage of consumers.”


U.S. PIRG is the national advocacy office for the State Public Interest Research Groups. PIRGs are non-profit, non-partisan public interest advocacy organizations.