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Check 21 Act

Check 21 Act

The Check Clearing for the 21st Century Act (Check 21) was signed into law on October 28, 2003, and will become effective on October 28, 2004.

Check 21 is designed to foster innovation in the payments system and to enhance its efficiency by reducing some of the legal impediments to check truncation.

The law facilitates check truncation by creating a new negotiable instrument called a substitute check, which would permit banks to truncate original checks, to process check information electronically, and to deliver substitute checks to banks that want to continue receiving paper checks.

A substitute check would be the legal equivalent of the original check and would include all the information contained on the original check. The law does not require banks to accept checks in electronic form nor does it require banks to use the new authority granted by the act to create substitute checks.

Source: www.federalreserve.gov

Banking Technology Implications

The Check 21 Act will require banks to have the technology to create an electronic image of the check. Infrastructure such as storage will become important.

Related Websites

Links to other information technology banking resources.


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Truncation

Also called check safekeeping.

Checks are not returned to you, but rather stop at the bank where they are deposited or your bank.

Checks are photocopied by the bank, then destroyed.

This process saves the bank money.

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