What is Check 21?
The Check Clearing for the 21st Century Act, commonly referred to as Check 21, is a federal law that enables banks to handle more checks electronically, which makes check processing faster and more efficient. It is designed to replace the old process whereby banks must physically move original paper checks from the bank where the checks are deposited to the bank that pays them, transportation that can be inefficient and costly.
Check 21, which became effective on October 28, 2004, makes a “substitute check” (created using an image of the check) the legal equivalent of the original paper check. Under Check 21, banks can electronically transmit check images rather than physically moving the original paper checks between the receiving and paying banks.
Check 21 applies to all types of checks: consumer, business, traveler’s and U.S. Treasury.
Why Check 21?
One of the many hard lessons learned from the tragic events of September 11, 2001, was the importance of developing and implementing improvements to ensure the safety and security of the U.S. payments system.
With the country’s domestic air transportation system grounded for several days, a serious weakness in the paper-based check processing system was exposed, creating a potentially crippling set of circumstances. Since checks could not move, the system came to an abrupt halt, signifying the need for a rapid conversion to check electronification. Congress moved swiftly to enact Check 21 legislation. Through image-based processing and paper check truncation, the promise of a more stable, orderly payments system is now being realized.
At the same time, physical check processing costs are increasing, amounting to nearly twice that of electronic payments. A paper check is physically handled an average of 26 times during processing, adding days to the total processing time. For billers, the opportunity to reduce costs and increase efficiencies in the accounts receivables process is clear.
For More Information …
We invite you to learn more about Check 21 through the following resources.
Sources:
ACS X9
BAI
Deluxe Financial Services
The Federal Reserve Board
JPMorganChase