Check 21 Overview
The purpose of the Check 21 Act is to encourage electronic check processing and thereby improve the overall efficiency of the nation's payment system. It has side benefits such as conserving the nation's recources, reducing fraud, reducing errors and check clearing fees, and cutting down on processing time.
Key Provisions:
- Check 21 allows banks and retailers to exchange electronic copies of checks.
- Check 21 creates a new negotiable instrument known as a "substitute check." A substitute check is the legal equivalent of an original check. It's just a paper reproduction of the scanned check image with some additional encoding that verifies it as a legal document. It is a legal equivalent of the check and may be deposited, presented and sent for collection or return.
Financial institutions cannot "opt out" of Check 21. The law requires them to receive substitute checks and be bound by the procedures and timelines in the legislation. In other words, while you may have signed up for cancelled checks with Compass, if another bank or processing center scans your check, we cannot retrieve the original document for you.
