Check 21Takes Effect
November 4, 2004
Check 21, a new federal law allowing banks to process all checks electronically, took effect on October 28. The law will greatly speed processing times and reduce costs for banks, but some consumer groups fear that consumers and other businesses may not benefit--and may be hurt.
Key issues that may impact colleges and universities include concerns that consumers (such as students and parents) will be unaccustomed to how quickly checks clear and therefore more likely to bounce checks. Another issue is that while the law greatly reduces the amount of time it takes for a check to be deducted from the check writer's account, it does not change the length of time that banks can hold deposited checks before making the funds available. Putting a hold on deposits will further increase the likelihood of bounced checks and will allow banks rather than their customers to make money on the float.
Although most banks already credit deposits more quickly, banks are allowed to hold deposited checks for up to two days for local checks, five days for nonlocal, and as long as 11 days for checks greater than $5,000. In light of the expedited processing times under Check 21, colleges and universities should review their availability schedule with their banks and may want to renegotiate the terms to ensure that deposits will be credited to their accounts in a timely manner.
Colleges may also want to make an effort to educate students about the changes and caution them about bouncing checks. Consumers also need to be aware of the new rules for correcting errors in electronic processing, as some consumer protections are not available unless the consumer gets a copy of the substitute check.
Consumers Union and the Consumer Federation of America have prepared materials to explain Check 21 to consumers and have lobbied banks to adopt voluntarily consumer-friendly policies.
Other resources on Check 21 include:
- IRS Releases Final Report on College and University Compliance Project
- NACUBO Seeks Input on Ethics, Fraud, and Controls
- FY13 Implementation Reminder for Independent Institutions
- CAO and CBO Collaborations: Leveraging Institutional Capacity to Impact Effectiveness
August 5-6, 2013
- 2013 Planning and Budgeting Forum
September 16-17, 2013
- WEBCAST: The Higher Education Accounting Forum Online
Wednesday, May 29, 2013 10:00 AM - 5:00 PM ET
- WEBCAST: Improve Your NFP Audit and Accounting Guide IQ
Wednesday, June 26, 2013 1:00 PM ET
- ON-DEMAND: OD: The Cashless and Paperless Business Office
- ON-DEMAND: Affordable Care Act: Implementation Roadmap for Colleges and Universities
- A Guide to College and University Budgeting: Foundations for Institutional Effectiveness, 4th ed. - by Larry Goldstein
- NACUBO's Guide to Unitizing Investment Pools - by Mary S. Wheeler
- Managing and Collecting Student Accounts and Loans - by David R. Glezerman and Dennis DeSantis