Check 21
Many of you will begin hearing about new legislation recently signed into
law which will change the way your personal checks are processed. This new
law, the "Check Clearing for the 21st Century Act" also known as
Check 21, will improve the efficiency of the payment processing system by
allowing banks and credit unions to exchange checks electronically. Check
21 will go into effect on October 28, 2004.
Current law requires banks and credit unions to physically present
and return original checks. In a typical example where a consumer issues a
check as means of payment to another individual or organization, that check
is deposited into the recipients financial institution where it is transported
to a central operations center. The check is then usually sent to one or more
intermediaries - such as a Reserve Bank, a correspondent bank or to a clearinghouse
- for collection before it is ultimately delivered to the bank on which it
is drawn for payment. During each step of this process, the check must be
physically shipped to its destination by air or ground transportation.
Under the new act digital images of checks will hold the legal
equivalent to the original paper version allowing images to be transported
electronically rather than physically. Reduced physical check handling will
lower transportation costs, lower opportunities for lost items, lower incidents
of fraud, will expedite the check clearing process, and will result in a more
streamlined collection and return process.
