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How Will Check 21 Affect Reg CC?


Question: How Will Check 21 Affect Reg CC?

Answer: On October 28, 2003, President Bush signed the Check Truncation Act, also known as Check 21. This new law calls for implementation within 12 months, so it will go into effect on October 28, 2004. One of the Act's stated intents is to make funds available to consumers more quickly.

At the core of the Check 21 Act is the use of "Image Replacement Documents", in other words, a substitute check. Paper checks can be truncated (converted to electronic images) at any point in the check-clearing process. That electronic image can be reconverted into a substitute check that, if it conforms to the law's standards, is the legal equivalent of a paper check and must be accepted as such. Additionally, this regulation will impact the Expedited Funds Availability Act, including Reg CC, the regulation dealing with the holds that may be placed on deposited funds. One of the provisions of the Check Truncation Act (Section 16) says within 30 months of the effective date, the Federal Reserve Board should submit a report and recommendations to Congress on what changes need to be made to the EFAA. Therefore, at that time Reg CC could be affected, but there is no way to know what those changes will be right now. Unfortunately, as those involved with check and draft handling are aware, the current Reg CC holds only provide financial institutions minimal protection from fraud losses. Therefore, institutions must continue to abide by Reg CC for at least another 41 months as is, and should continue to look for ways to improve their deposited funds policies and processes in order to combat fraud losses.

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First published on BankersOnline.com 12/15/03
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