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Inactive Financial Institution Letters
Check Clearing for the 21st Century Act
Final Amendments to the Federal Reserve Board's Regulation CC
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FIL-116-2004 October 27, 2004
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Summary:
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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.
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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:
(1) Set forth the requirements of the Check 21 Act that apply to
financial institutions;
(2) Provide a model disclosure and model notices relating to
substitute checks; and
(3) Set forth financial institution endorsement and identification
requirements for substitute checks.
- 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
Related Topics:
FRB
Regulation CC
Attachment:
FRB Model "Substitute Check Policy
Disclosure," published as Appendix C5-A to Regulation CC
Contacts:
Examination Specialist William H. Henley at (202) 898-6513, or WiHenley@fdic.gov, or Examination
Specialist Donald Saxinger at (202) 898-6521, or DSaxinger@fdic.gov.
Consumer compliance issues, please contact Acting Senior Policy Analyst
Rita Ross at (202) 898-3842, or RRoss@fdic.gov or Compliance Section Chief
April Breslaw at (202) 898-6609, or apbreslaw@fdic.gov.
Note:
FDIC
Financial Institution Letters (FILs) may be accessed from the FDIC's Web
site at www.fdic.gov/news/news/financial/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).
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Financial
Institution Letters FIL-116-2004
October 27, 2004
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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.
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Michael J.
Zamorski Director
Division of Supervision and Consumer Protection
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