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1. What is Check 21 and what is its basic purpose?
"Check 21" is industry shorthand for the Check Clearing for the
21st Century Act signed into law on October 28th, 2003 and becoming effective
on that day in 2004. Check
21 allows for the creation of Substitute Checks from a check image. These
Substitute Checks have the same legal status as the original paper check and
are processed in the same way. Check 21 was designed to facilitate electronic
check processing in a fair and equitable manner. The creation of Substitute
Checks allows electronic and paper check processing to co-exist, so institutions
that wish to continue processing paper checks may do so.
With approximately 32 billion checks written in the United States each year,
financial institutions are embracing check imaging as a way to reduce transportation
costs, processing costs, and fraud risks associated with physically processing
the original checks.
2. How do Substitute Checks relate to the Check 21 legislation?
Substitute checks help to foster truncation without mandating that banks
accept checks electronically since they hold the same legal status as the original
paper check. Substitute Checks are discretionary to create but mandatory to
accept.
3. Will Check 21 change how fast a bank must make check deposits
available for withdrawal?
Congress established the current funds availability rules for check
deposits in 1987 through the Expedited Funds Availability Act, or EFAA, which
the Federal Reserve Board implements through Regulation CC. EFAA sets
the maximum permissible hold periods on funds deposited by check at levels
that are intended to balance the desirability of providing consumers with
timely access to their funds with banks’ need to manage the risk of
check fraud.
Congress expects that as the check collection system becomes more efficient,
the amount of time it will take to return an unpaid check to the bank of first
deposit will decrease. The Federal Reserve Board monitors developments
in the check collection system on an ongoing basis to determine if the maximum
permissible hold periods should be shortened. If the Federal Reserve
Board finds sufficient improvements in check-collection and return times, the
Federal Reserve Board will reduce the Regulation CC availability schedule accordingly.
Check Imaging Statistics
- More than 32 billion checks are written in the US annually.
- A check is typically handled on average 19 times, increasing the opportunity
for errors.
- Financial institutions spend $6 billion to $8 billion per year on check
processing.
- Estimates of the cost savings attributed to check imaging and
image exchange range from $1 billion to $2.1 billion.
- Empty envelope fraud
accounts for 49% of all ATM fraud (source: Fair Isaac's Card Alert Fraud
Manager Team).
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