October 28, 2004. The Seattle Branch became the
first office in the Federal Reserve System to convert paper
checks to electronic
check images under the Check Clearing for the 21st Century
Act, which took effect on October 28, 2004. Traditionally,
Reserve Banks have transported physical checks for payment
processing—to and from financial institution customers
for local checks and between Fed offices for out-of-state checks.
Under the act, called “Check 21,” a “substitute
check” is the legal equivalent of a paper check. As a
result, Reserve Banks and financial institutions can exchange
electronic images for processing, printing the substitute check,
rather than waiting for the arrival of the original check.
After scanning the paper
deposits from its customer and converting them into an image
file, the Seattle Branch transmitted the
file to the Los Angeles Branch’s virtual sorting site
(one of 12 Federal Reserve sites) for distribution to Fed
offices around the country. In turn, the Fed offices printed
checks for presentment to paying banks in their respective
regions. In the future, more paying banks likely will elect
to receive these images electronically, eliminating the need
for Fed offices to print substitute checks.
exchange is not mandatory, but it can reduce or eliminate
transportation costs and significantly shorten
the traditional check clearing and settlement process.
How quickly Check 21 takes hold in the banking industry depends
on the costs of adopting the new technology and the operational
benefits, which vary for different types of financial institutions
in various regions around the country.
Consumers can expect
changes as well. Because of Check 21 and other improvements,
checks may be processed faster.
who receive canceled checks with account statements,
receive image statements (pictures of several checks on a
or request a copy of a canceled check, may receive a
combination of original and substitute checks.
To learn more,
Consumer Guide to Check 21 and Substitute Checks