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The Check Clearing for the 21st Century Act - or Check
21 - went into effect October 28, 2004 with the specific
purpose of reducing our reliance in the U.S. on paper checks.
In essence, Check 21 encourages banks to present and clear
checks electronically by allowing them to truncate paper
checks in the collection process by creating a Substitute
Check. Also known as Image Replacement Documents, or IRDs,
Substitute Checks are considered the legal equivalent of a
paper check.
While the discussions surrounding this issue had been ongoing
for several years, the need for a more streamlined check clearing
process became critical in the days following the 9/11 terrorist
attacks as literally trillions of dollars were prevented from
clearing due to grounded planes. Remote Check Deposit is the
first step in a nationwide effort to convert from paper to a
completely electronic environment, a process that will likely
take many years. In the end, however, Check 21 will result in
making the U.S. banking system far more efficient.
Your Responsibilities
Specifically with respect to Remote Check Deposits,
businesses will be responsible for:
- Scanning check images and transmitting deposits electronically
- Defining procedures for creating, approving and transmitting images to help mitigate the risk of fraud
- Devising secure storage for original paper checks for a specified number of days (Citibank requires 75 days)
- Proper destruction of original paper checks using an on-site shredder or bonded disposal service
- Facilitating employee awareness and providing comprehensive training
Check 21 Glossary
The following are a few of the most commonly used Check 21
and Remote Check Deposit terms.
- CAR - Character Amount Recognition
- IRD - Image Replacement Document (also Substitute Check)
- LAR - Legal Amount Recognition
- Check Conversion - the point in the clearing process when essential information from a paper check is captured electronically , either in the form of data or an image
- CTA - Check Truncation Act (also Check 21)
- Check Truncation - the removal of an original paper check from the collection stream, sending a Substitute Check or image in its place, as per agreement with the recipient
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