Why was Check 21 necessary?
Even with the growing popularity of debit cards, U.S. consumers write approximately 71 billion checks a year. Under the traditional paper exchange system for check processing, each of those 71 billion checks used to pass through as many as a dozen sets of hands from the time a check was written and it enters the banking system until it is returned to the consumer paid.
Under the old system, a check would arrive at a branch, be sent to a central site for initial processing and then sent to a local clearing agent or the Federal Reserve office for final processing. After that, it would be sent to the bank's agent, who would return the paper check to the paying institution. Needless to say, this paper shuffle was fairly antiquated in the Internet age. Financial institutions were clamoring for a more streamlined, more efficient processing method.
Thankfully, banks began to learn about the Check 21 Act, which went into effect on October 28, 2004. This act gives these financial institutions the ability to use electronic images of paper checks for more to more efficient processing.
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