Electronic Banking: The Implementation of the Check 21 Act (CRS Report for Congress)
Premium Purchase PDF for $24.95 (13 pages)
add to cart or
subscribe for unlimited access
Pro Premium subscribers have free access to our full library of CRS reports.
Subscribe today, or
request a demo to learn more.
| Release Date |
Nov. 9, 2004 |
| Report Number |
RL32668 |
| Report Type |
Report |
| Authors |
Walter W. Eubanks, Government and Finance Division |
| Source Agency |
Congressional Research Service |
Summary:
On October 28, 2003, President Bush signed the Check Clearing for the 21st Century Act into
law
( P.L. 108-100 , "Check 21 Act") to become effective on October 28, 2004. In the Check 21 Act,
Congress gave the Board of Governors of the Federal Reserve System (Fed) the responsibility to
prescribe regulations necessary to implement the provisions of the act. On July 26, 2004, the Fed
published its final regulations for the Check 21 Act. The purpose of the act is to allow banks to take
advantage of the potential cost savings of processing checks electronically. The final regulations
facilitate the wider use of electronic check processing without demanding that any bank change its
current check-collecting practices. It does this by authorizing the use of the substitute check. Check
21 makes a substitute check the legal equivalent of an original check for all persons and all purposes
including any provision of federal or state law if a bank has provided the warranties, and if the
substitute check: (1) accurately represents all of the information on the front and back of the original
check at the time the original check was converted electronically, and (2) bears the legend, "This is
a legal copy of your check. You can use it the same way you would use the original check." It is
important to note that this law makes each bank financially responsible for any substitute checks it
handles.
If a consumer suffers a loss due to the use of a substitute check, the consumer has the right to
make a recredit claim, which the consumer may file with the bank holding his or her account. If the
bank determines that the consumer's claim is valid, the bank will recredit the consumer's account for
the amount of the consumer's loss, up to the amount of the substitute check, plus interest if the
account is an interest-bearing account, no later than the end of the business day after the banking day
on which the bank makes that determination. If the bank determines that the consumer's claim is not
valid, because the substitute check for which the consumer made the claim was in fact properly
charged to the consumer account, the bank must send notice to the consumer no later than the
business day after the banking day on which the bank makes that determination.
This report begins with a brief background of the check truncation issue, including a brief
legislative history of the Check 21 Act. The next section discusses what Check 21 does and does
not do. Next, it discusses the key rules and procedures of the Fed's final regulations. These rules
range from the provisions governing the substitute check to the expedited recredit for consumers and
banks. The report also examines consumer protection provisions that were incorporated in the law
and those that were left out. The section on banks adopting electronic check clearing suggests that
the costs will slow adoption, and the conclusion suggests that Check 21 is not likely to reduce paper
check clearing significantly in the short run. Other methods of electronic payments, however, will
reduce paper check clearing more rapidly.
This report will be updated as legislative and financial developments warrant.
