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What Is Check 21?
Federal legislation, called Check Clearing for the 21st Century Act (Check 21), went into affect on October 28th, 2004. It allows financial institutions to process checks electronically. The law is designed to improve the efficiency of the overall payments system by fostering innovation within the check processing system.
Why Was Check 21 Created?
In the days following the September 11th terrorist attack, planes were grounded and banks were unable to process deposits. This exposed vulnerabilities in the check processing system. The US Government responded with Check 21 to reduce the dependency on physical transportation of checks and to enable new ways to process checks. Through reduced document handling, the financial industry stands to save billions of dollars per year.
How Does Check 21 Work?
A paper check is scanned using a scanning device and the check’s digital image is stored in an Image Cash Letter (ICL) file in the required X9.37 file format. The X9.37 format is approved by the Federal Reserve Bank for combining multiple check images and related check information into a single file. This file is then electronically transmitted for settlement. If at any point during the clearing process, a financial institution does not wish to receive images, a substitute check or Image Replacement Document (IRD), is printed. This paper reproduction of the original check then continues through the clearing process via existing check processing channels. The substitute check has the same legal equivalency as the original paper check.
What Is Check Image Exchange?
If a substitute check is not required, the digital image of the check flows through the clearing process via image exchange networks. The exchange of digital image files is called image exchange. While Check 21 does not mandate image exchange, it is the ultimate goal for maximum efficiency of the entire payment industry.
What Is Remote Deposit Capture?
Check 21 serves as a catalyst for new check capture technologies and processes. It also opens the door for new markets and new business opportunities. With remote deposit capture, for example, merchants can image capture their checks at their place of business and send them to their bank electronically – quickly and conveniently. This eliminates their daily trip to the bank and allows automatic posting to their accounts receivable system. For the bank, offering remote deposit capture to corporate customers increases their customer base and generates additional revenue.
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What Are The Benefits Of Check 21?
* Cut time, costs and risks associated with transporting paper checks
* Increase disaster recovery options
* Optimize funds availability by accelerating collections and returns
* Extend cutoff times for deposits
* Reduce bank charges with electronic payment processing
* Identify potential fraud sooner
* Reduce capital, operational and staff expenses by eliminating second pass encoding processes
* Increase staff productivity by streamlining operations
* Eliminate accounts at multiple banks by consolidating deposits electronically
* Expand markets served beyond traditional geographic boundaries
* Improve accuracy by eliminating paper processing steps and human handling
* Provide on-line image based services to customers
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