Check 21 was instituted by the federal government in October of 2003 and came into effect one year after its enactment. this law made it legal to convert a paper check to digital image for improved document processing. by using check 21 processing, banks do not have to send the original paper check to the bank on which it is drawn for settlement, store large amounts of paper documents, or send every cleared item back to the customer with their statement. Consumers are even able to create an image of their check with their phone or a scanner attached to their computer to make an electronic deposit. The law designates certain items as being conversion eligible including consumer, commercial, money orders, and traveler’s checks. any financial institution may perform this type of processing for decreased handling, transport, sorting, and mailing costs. Financial institutions have the option to store the paper document for future reference, return it to the customer, or destroy them later.Check Scanners: Providing the Means for Electronic Document Creation and Standards ComplianceA check scanner is used by financial institutions to complete the conversion process for a single item or certain batch number counts. these devices utilize specific technologies to image both written and magnetically imprinted information. a substitute check is considered a legal instrument of payment just as the original paper form. it must accurately show all aspects of the paper equivalent as they are presented when digital imaging takes place. this information includes the payee name, the receiving name, legal amounts, courtesy amounts, all endorsements, encoded information, and any other details shown on the front or back of the document. The MICR line must also be accurately represented as well as include a legend stating the image is a legal copy of the originally submitted document.

Only those converted to a digital copy with a check scanner may be submitted through the clearing process. these items still fall under the typical regulations along with many additional state and federal standards.A customer will provide their endorsement just as with any other deposit and then present it to the teller for processing. The depositing bank will stamp their endorsement on the paper document, complete the account entry, and capture the image as well as the MICR line. The original is replaced by the created image and not used for the rest of the processing procedure. Files are electronically sent to the paying financial institution for payment settlement. An agreement must be present for this electronic exchange between the two associated banks to take place. otherwise, the bank used for the deposit will be required to send the original copy or a substitute check to the paying bank. upon settlement, the paying bank may supply a copy of the digital image as part of the customer’s statement, although most banks these days do so only by request from the customer. a bank participating in Check 21 processing can perform scanning at the teller station, as part of their back counter branch operations, or on strictly a regional level, although, many banks are moving toward teller capture. all are appropriate as long as the image creation, sending, and clearing processes follow the standards set by this federal statute.

Check 21 Processing: Transforming How Check Payments Are Treated by Financial Institutions

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