"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.

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).

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.