December 16, 2004 -- With the Check 21 Act, a federal law that was enacted in October 2003 that became effective in October 2004, banks can process checks electronically with more speed and efficiency. 

What is Check 21?

Check 21 gives banks the ability to take a picture of the front and back of a check and transfer this information to other banks electronically.  This electronic image of the original check is called a substitute check.  These substitute checks are now considered negotiable instruments.  When a substitute check is created the original check is taken out of circulation.  Banks are not required to implement Check 21, however most banks are expected to take advantage of it based on the substantial amount of cost savings that the bank will incur. 

Impact on Consumers

There are several notable changes that consumers will notice over time.

• Fewer original checks will be in circulation,
• Checks will clear the bank faster than before.
• Courts, retailers and others will recognize substitute checks as originals.

Impact on Businesses and Auditors

• Customers that receive their original checks can now request substitute checks from the bank.
• Since there are a variety of ways for the banks to return checks, it is important that businesses be aware of their bank’s policies so that they can establish the proper internal controls.
• Since original checks may no longer be available, auditors may use substitute checks as evidential matter.

For more information on the Check 21 Act, log onto  http://www.federalreserve.gov/paymentsystems/truncation/default.htm or call Joe Canataro or Cathy Nemeth at 215-564-1900 .

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