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Federal Deposit
Insurance Corporation

Each depositor insured to at least $250,000 per insured bank

Check 21 Act Frequently Asked Questions

The following are responses to frequently asked questions about the Check Clearing for the 21st Century Act (Check 21 Act). These responses are based on the changes to the Federal Reserve Board's (FRB) Regulation CC and intended to be a resource for financial institutions, rather than official legal interpretation.

Answers to consumer questions can be found at the FRB's Web site, www.federalreserve.gov/paymentsystems/truncation/faqs.htm.

  1. What is a "substitute check" (also commonly referred to as an image replacement document (IRD))?

    Response: Section 3 (16) of the Check 21 Act defines a "substitute check" as a paper reproduction of the original check that:

    • Contains an image of the front and back of the original check;
    • Bears a Magnetic Ink Character Recognition (MICR) line containing all the information appearing on the MICR line of the original check, except as provided under generally applicable industry standards for substitute checks to facilitate the processing of substitute checks;
    • Contains a legend stating that it is a legal equivalent of the original check;
    • Conforms, in paper stock, dimension and otherwise, with generally applicable industry standards for substitute checks; and
    • Is suitable for automated processing in the same manner as the original check.

    Upon the Act's effective date of October 28, 2004, a substitute check that meets these specific requirements will be considered the legal equivalent of the original check it is replacing.

  2. What happens when there is a conflict between state law and the Check 21 statute? Massachusetts, for example, prohibits check truncation.

    Response: Section 13 of the Check 21 Act provides that the Act shall supersede any provision of federal or state law, including the Uniform Commercial Code, which is inconsistent with this Act, but only to the extent of the inconsistency. State laws such as those prohibiting check truncation will become void and unenforceable beginning on the Act's effective date of October 28, 2004.

  3. Does the color of ink on the original document affect the legality of the original check?

    Response: No. The only reference to ink color appears in Appendix D of the FRB's Regulation CC. Appendix D currently requires depositary bank endorsements to be printed in dark purple or black ink, and requires all other endorsements to be printed in an ink color other than purple. However, the FRB believes that it is important for all endorsements to be printed in dark ink so that they can be easily read and imaged. The FRB also believes that all endorsements that a reconverting bank prints onto a substitute check at the time that the substitute check is created will be printed in a single ink color, likely black. The FRB, therefore, proposes to require all endorsements, including the depositary bank endorsement, to be printed in black ink. For additional information, refer to the FRB's Web site at: www.federalreserve.gov/BoardDocs/Press/Bcreg/2003/20031222/attachment.pdf.

  4. Some banks have reported that they have been receiving IRDs for at least one month and have asked why they are receiving IRDs now rather than after October 28, 2004 - the effective date of the act?

    Response: Some banks are already implementing the provisions of the Check 21 Act as a reconverting bank. However, a bank that is receiving IRDs needs to check with its state's Uniform Commercial Code (UCC) to determine whether it should accept IRDs prior to October 28, 2004, or if state law prohibits check truncation or the acceptance of anything other than the original item.

  5. What specific actions should banks be taking now to prepare for the implementation of Check 21?

    Response: The management of all financial institutions should become familiar with the Check 21 Act, and determine whether the bank will become a reconverting bank by creating substitute checks. Whether the bank becomes a reconverting bank or simply accepts and processes substitute checks created by other banks, significant resources need to be dedicated to training staff on the following topics:

    • Recognizing and accepting substitute checks, including fraud detection methods;
    • Processing options;
    • Expedited recrediting procedures under the Check 21 Act; and
    • Anticipating and addressing customer service needs.

    The FRB's revisions to section 229.51 and commentary provide information on the responsibilities and duties of a reconverting bank. In addition, FIL-54-2004 issued by the FDIC on May 21, 2004, provides helpful guidance to FDIC-supervised institutions about the necessity to begin planning for operational changes needed to implement the new law. The FIL also highlights the responsibilities of the reconverting bank (i.e., the bank that creates a substitute check or transfers a substitute check to another party).

  6. Is a delay or extension of the October 28, 2004, effective date being considered?

    RESPONSE: No delays are scheduled or anticipated. Section 20 of the Check 21 Act provides: "This Act shall take effect at the end of the 12-month period beginning on the date of the enactment of this Act, except as otherwise specifically provided in this Act." The Check 21 Act was signed into law on October 28, 2003. Thus, the Act will take effect on October 28, 2004.

  7. Are there record retention requirements for the original items in the Check 21 Act or Regulation CC?

    Response: No. However, each financial institution that poses this question should consult its state's enacted version of the UCC for record retention requirements.