We have a local gym that takes an ACH authorization from a customer and turns it into what appears to be a check. the "Check" states where the signature would go that "this payment has been authorized by your depositor and is guaranteed by the above named company". How will this type of transaction fit in the Check 21 world?

The gym is sending you what are sometimes referred to as "demand drafts." Check 21 won't affect them. If they are truncated like checks, they can be reconverted like checks.

Some states have passed amendments to their UCC versions that protect drawee banks from unauthorized demand drafts on consumer accounts. The liability shifts back to the bank accepting them for deposit (and presumably to the company creating/depositing them). In the states that have not adopted these changes, the drawee bank is stuck if it doesn't return the draft by its midnight deadline (which is rarely accomplished).

The Fed is looking at the legality and advisability of adding changes to federal regulations that would make demand drafts subject to transfer and presentment warranties throughout the country.

If it's a piece of paper, it is not an ACH entry. You are looking at a "demand draft." If you search BOL using that term you will find a significant number of prior threads. In short, it's sort of a piece of paper whose parents never stood before the preacher. My only guess at this point is that the problems it presents in today's payment process will be enhanced if it's converted to a substitute check. While customers in many states can claim it is not properly payable, if it's a substitute check they will be entitled to expedited recredit...

Others may be more courageous and attempt to answer your question. I can only thank you for it. I knew the Fed was considering adopting unused model language from the UCC that would essentially make the treatment of demand drafts uniform among the 50 states. Now, I know why.

You should switch the gym to ACH. Drafts are old stuff plus wioth ACH they can also debit savings accounts.

CAB