Check 21
An Overview
What it is
Sample of a 'Substitute Check'
How will it affect me?
Overview
In 2000 the Federal Reserve Bank investigated new concepts to promote check truncation and electronic check presentment. Then 9/11 occurred and drastically affected our National Payments System. American Financial Institutions lost billions of dollars in 'float' money and cost the Federal Reserve System millions of dollars in fees. On December 21, 2001 Alan Greenspan (chairman, Federal Reserve Bank) accelerated his efforts to create a more efficient national payments system by proposing the Check Truncation Act. In the fall of 2002 the name of the act was changed to The Check Clearing Act of the 21st Century or Check 21. After extensive research and planning Check 21 was passed into law on October 23, 2003. Compliance by all financial institutions is mandatory by October 28, 2004.
What it is
It is a law that facilitates significant change in the way checks will be processed in the United States. The act legalizes a substitute check. A substitute check is a digital reproduction of an original check and the act mandates that it is the legal equivalent of the original check. These checks can be created by any bank or check processor handling the clearing of the original check and must be produced in accordance with industry standards for quality. By October 28, 2004 every bank will be required to accept substitute checks, just as they currently accept an original paper check.
How will it affect me?
Quicker clearing times and reduced float as adoption of check 21 becomes more widespread. Adoption will not be overnight and could take years.
Balancing and monitoring accounts regularly to prevent unwanted overdrafts will become even more important.
A deposited item (any check which you deposit to your credit union account) could be returned back to you in the form of a substitute check. Special notification will be provided to you if a check that we are returning to you is in the form of a substitute check
