Check 21 (The Check Clearing for 21st Century Act) is a new federal law which will go into effect October 28, 2004. The law mandates acceptance of a new negotiable instrument known in banking industry as, Image Replacement Document (IRD). An IRD is simply a substitute check. This allows a bank that exchanges images a legal means to produce a valid physical image of check as a replacement for actual check if an institution or an account holder requests a physical check.

This legislation enables banks and other financial institutions to streamline their check processing operations. Most checks processed today are electronically imaged. These images can be moved between banks without need for physical movement of paper checks, which reduces cost of transportation and other labor inherent in check processing. It also insures check movement in event of an emergency or disaster that halts transportation system, as events of 9/11 did.

It is important to note that there is no legal mandate for exchange of images, nor does it require a bank to accept images. Banks that do not have check imaging capabilities can still require a physical document.

But for institutions with check imaging, this will allow it to leverage their imaging systems by participating more in electronic exchanges

Electronic Cashletter Exchange (ECE) lets banks present digitized check images for clearing to each other or through participation in image exchanges. ECE has standards known as X9.37. If images are presented to a Federal Reserve Bank, it must be formatted to those standards. This in effect has made X9.37 de facto industry standard. Although banks and image exchanges can agree on different formats, X9.37 is likely to be most widely used format.

For business owners, Check 21 could open door to opportunities to save on costs associated with research fees that banks charge for check copies, allow control of their check images, and allow for better availability of funds, or even reduce check item charges.