The Check Clearing for the 21st Century Act (or Check 21 Act) is a

United States federal law The law of the United States comprises many levels of Codification (law), codified and uncodified forms of law, of which the supreme law is the nation's Constitution of the United States, Constitution, which prescribes the foundation of the ...

, , that was enacted on October 28, 2003 by the 108th U.S. Congress. The Check 21 Act took effect one year later on October 28, 2004. The law allows the recipient of a paper check to create a digital version of the original, a process known as check truncation, into an electronic format called a "

substitute check A substitute check or cheque, also called an image cash letter (ICL), clearing replacement document (CRD), or image replacement document (IRD), is a negotiable instrument used in electronic banking systems to represent a physical paper cheque (c ...

", thereby eliminating the need for further handling of the physical document. The recipient bank no longer returns the paper check but electronically transmits an image of both sides of the check to the bank it is drawn upon. Consumers are most likely to see the effects of this act when they notice that certain checks (or images thereof) are no longer being returned to them with their monthly statement, even though other checks are still being returned. Another effect of the law is that it is now legal for anyone to use a computer scanner or

mobile phone A mobile phone or cell phone is a portable telephone that allows users to make and receive calls over a radio frequency link while moving within a designated telephone service area, unlike fixed-location phones ( landline phones). This rad ...

to capture images of checks and deposit them electronically, a process known as

remote deposit Remote deposit or mobile deposit is the ability of a bank customer to deposit a cheque into a bank account from a remote location, without having to physically deliver the cheque to the bank. This was originally accomplished by scanning a digit ...

. Check 21 is not subject to ACH rules; therefore transactions are not subject to NACHA (The Electronic Payments Association) rules, regulations, fees and fines. This act was passed in response to the events of 9/11/2001, at that time checks were still physically transported between banks. In the weeks after 9/11, planes were grounded, meaning checks were not transported in the timely manner consumers were used to. To prevent this breakdown of an at the time critical system of payment, this act was proposed and passed.

Truncation

The Act lets banks take advantage of image technologies and electronic transport while not being dependent on other banks being ready to settle transactions with images instead of paper. The process of removing the paper check from its processing flow is called " check truncation". In truncation, both sides of the paper check are scanned to produce a digital image. If a paper document is still needed, these images are inserted into specially formatted documents containing a photo-reduced copy of the original checks called a "

". Once a check is truncated, businesses and banks can work with either the digital image or a print reproduction of it. Images can be exchanged between member banks,

savings and loan A savings and loan association (S&L), or thrift institution, is a financial institution that specializes in accepting savings deposits and making mortgage and other loans. While the terms "S&L" and "thrift" are mainly used in the United States, ...

credit union A credit union is a member-owned nonprofit organization, nonprofit cooperative financial institution. They may offer financial services equivalent to those of commercial banks, such as share accounts (savings accounts), share draft accounts (che ...

s, servicers, clearinghouses, and the

Federal Reserve Bank A Federal Reserve Bank is a regional bank of the Federal Reserve System, the central banking system of the United States. There are twelve in total, one for each of the twelve Federal Reserve Districts that were created by the Federal Reserve A ...

Effects and developments

Remote deposit

Patents

There are a number of patents relating to "check back collection systems",Congressional Budget Office Cost Report
pages 2, 5 and 11 including some owned by DataTreasury.Lisa Lerer
"Senate, old legal woes drawn into patent fight"
politico.com, March 25, 2008

References

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External links

Full Text of the Check 21 Act
*
Accredited Standards Committee (ASC) X9 Financial Industry Standards: Statement on Check 21 adoption (October 23, 2004)
. ''Accredited Standards Committee X9''. Archived fro
the original
on December 24, 2008. *
Check 21 Return Codes
. '' Vericheck''. Archived fro
the original
on March 15, 2017. Federal Reserve System Negotiable instrument law United States federal banking legislation United States federal criminal legislation Acts of the 108th United States Congress Cheques