Check Clearing for the 21st Century Act

Summary

The Federal Reserve Board (FRB) has finalized amendments to Regulation CC that are necessary to implement the Check Clearing for the 21st Century Act (Check 21 Act). The Act becomes effective on October 28, 2004.

Highlights

• The Check 21 Act facilitates check truncation and electronic check exchange by authorizing a new negotiable instrument called a "substitute check," which is the legal equivalent of an original check for all purposes.
• The Check 21 Act does not require any bank to create substitute checks or to accept checks electronically. However, it does require banks to accept a legally equivalent substitute check in place of an original check after the Check 21 Act's effective date of October 28, 2004.
• The FRB has issued final amendments to Regulation CC to implement the Check 21 Act. The amendments:
• Answers to frequently asked questions posed by financial institutions can be found at http://www.fdic.gov/regulations/resources/21actfaq/index.html (link no longer available).
• Answers to consumer questions can be found at www.federalreserve.gov/paymentsystems/truncation/faqs.htm (link no longer available).

Continuation of FIL-116-2004

Distribution

FDIC-Supervised Banks (Commercial and Savings)

Suggested Routing

Chief Executive Officer

Compliance Officer

Note

FDIC Financial Institution Letters (FILs) may be accessed from the FDIC's Web site at www.fdic.gov/news/financial-institution-letters/2004/index.html.

To receive FILs electronically, please visit http://www.fdic.gov/about/subscriptions/fil.html.

Paper copies of FDIC FILs may be obtained through the FDIC's Public Information Center, 801 17th Street, NW, Room 100, Washington, DC 20434 (1-877-275-3342 or (703) 562-2200).

Additional Related Topics

• FRB Regulation CC

Financial Institution Letters
FIL-116-2004
October 27, 2004

Check Clearing for the 21st Century Act

Final Amendments to the Federal Reserve Board's Regulation CC

The Federal Reserve Board (FRB) has finalized amendments to Regulation CC that are necessary to implement the Check Clearing for the 21st Century Act (Check 21 Act). The Act becomes effective on October 28, 2004.

On May 21, 2004, the Federal Deposit Insurance Corporation (FDIC) notified institutions under its supervision to prepare for Check 21 Act operational changes (see FIL-54-2004). On July 26, 2004, the Federal Reserve Board issued a final rule and commentary to implement the Check 21 Act.

The purpose of the Check 21 Act, enacted on October 28, 2003, is to facilitate check truncation and electronic check exchange, and to authorize a new negotiable instrument called a "substitute check." A substitute check is a paper reproduction of the original check containing an image of the front and back of the original check that can be processed in the same manner as the original check.

Although the Check 21 Act provides that a properly prepared substitute check is for all purposes the legal equivalent of the original check, financial institutions are not required to create substitute checks or to accept checks electronically. The Check 21 Act, however, includes new warranties, an indemnity and expedited recredit procedures that protect substitute check recipients.

Specifically, the final rules:

• Set forth the requirements of the Check 21 Act that apply to financial institutions;
• Provide a model disclosure and model notices relating to substitute checks; and
• Set forth financial institution endorsement and identification requirements for substitute checks.

The complete rules, which are published as amendments to Regulation CC, can be found at: http://www.federalreserve.gov/boarddocs/press/bcreg/2004/20040726/. Attached is the Federal Reserve Board's model "Substitute Check Policy Disclosure" for consumers, which has been published as Appendix C-5A to the rules.

Michael J. Zamorski

Director

Division of Supervision and Consumer Protection