Check 21, the check clearing process of the 21st Century, is a law that allows financial institutions to process electronic checks instead of the traditional paper checks. This enables banks and other financial organizations to be more efficient and fast in processing checks.
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Check 21 explained
Check 21 law allowed financial entities to convert the traditional paper cheques into a digital version – referred to as the “substitute check”. This process of creating a digital check is called truncation. The paper cheque is scanned and saved as an electronic image and it is processed as a digital check after this.
The digital version of a cheque allows it to be transferred and processed much quicker and efficiently. Although this process has been favored by many, the advancement of technology has not worked in the favor of this law. With individuals being able to take pictures of cheques with their phones and tablets, they are able to deposit checks electronically – referred to as remote deposit. This is one of the biggest drawbacks of Check 21.
Additionally Check 21 does not need to follow the ACH rules and is a much faster process, taking only 1-3 working days to be completed.