Financial Update (Third Quarter 2004)


 New Check 21
 Products for Banks

 Fed Responds to
 Declining Check

 Bank Regulators
 Watch Real
 Estate Market

 Call Reports

 Regulating Fannie
 and Freddie

 New Report on
 Banking Industry

 Fair Credit Act


 Data Bank

 Circular Letters



Reserve Banks Offer Products
for Check 21 Rollout

Check 21 image

Financial institutions throughout the country are preparing for Oct. 28, 2004—the date the Check Clearing for the 21st Century Act, or Check 21, goes into effect. The Federal Reserve Banks recently introduced a new suite of Check 21 products—FedForwardSM, FedReturnSM, and FedReceiptSM—to help these institutions get ready.

FedForward provides image cash letter deposit services and paper deposit cull services (which expedite the clearing of items above a certain dollar threshold); FedReturn provides an image cash letter deposit service for returned items; and FedReceipt delivers an image cash letter in place of paper cash letters.

New products have wide-ranging benefits
“This product suite will enable a financial institution of any size and processing sophistication to take advantage of the benefits enabled by Check 21,” said Fred Herr, senior vice president in the Federal Reserve’s Retail Payments Office, based at the Atlanta Fed. The Reserve Banks will continue to refine these products as well as offer additional products as customer demand evolves, Herr indicated.

Fed launches suite of Check 21 products
Preparing for Check 21
Federal Reserve Financial Services
Check 21 Becomes Law

Taking advantage of technology
Although the use of checks is declining, checks remain the most widely used form of noncash retail payment in the United States. Check 21, passed by Congress in 2003, will improve the efficiency and reduce costs in the nation’s check collection system by reducing some of the legal impediments to check truncation, a process that captures digital images of checks and delivers them electronically.

Substitute checks improve efficiency
Check 21 facilitates check truncation by creating a new negotiable instrument called a substitute check, a paper printout of a digital image. A substitute check is the legal equivalent of the original check and can be used in place of the original even if no prior agreement is in place between banks on either end of the check transaction. As a result, paper items can be truncated early in the collection or return process, with image cash letters replacing paper cash letters. Since some paying banks may decide not to accept electronic presentment or returns, the act allows substitute checks to be presented instead.

To help financial institutions prepare for Check 21, Reserve Banks have held numerous informational sessions throughout the country. The Atlanta Fed sponsored 24 of these events. For more information, go to the Federal Reserve’s financial services Web site.