What you need to know about the Check Clearing for the 21st Century Act

In 2004, the Check Clearing for the 21st Century Act went into effect. Also called ‘Check 21’, the federal law was designed to improve the speed and efficiency of the check processing system – and it has.

The most significant part of the act was the introduction of ‘substitute checks’ and the requirement of banks, credit unions, and other financial institutions to accept and process them.

A substitute check is a high quality paper reproduction of both sides of an original check. It’s a legal equivalent and negotiable.

Financial institutions also have the option of scanning original checks and using digital images.

In any case, both are acceptable proofs of payment for the paying bank or customer, and they have the same legal protection. More importantly, both allow the financial institution to process the check information electronically, which speeds up the process and makes it more efficient.

Before Check 21, organizations had to ship the original paper check from where someone wrote and deposited it… to the bank that actually paid it. Delivery by truck and airplane was costly and time-consuming.  

Check 21 has streamlined the entire checking process but it has also increased the volume of documents that contain personally identifiable information – and that puts the spotlight on the importance of information security.

Here are aspects of a comprehensive document management policy that go hand-in-hand with the Check Clearing for the 21^st Century Act to safeguard private information.

• Document retention – Privacy laws and legislation stipulate what information has to be retained and for how long. While Check 21 does not require checks to be stored for a set period of time, financial institutions have to safeguard all confidential information including original customer checks and cancelled checks. When documents are no longer needed, keeping them increases the risk of a security breach.

• Secure storage – Confidential documents such as original customer checks as well as substitute checks and digital checks must be securely stored. The document management policy should identity which documents require limited access or access only by employees who need the information to do their jobs.

• Secure document destruction – When documents are no longer needed, they should be securely destroyed by a reliable shredding company that provides a secure chain of custody with locked containers for documents, security-trained customer security representatives, and secure on or off site destruction services. Cross-cut shredding technology is recommended. 

• Record of documents – It’s important to have a record of when and where documents are created and stored in-house, and when and where they are securely destroyed. Your shredding company should provide both a record of service and Certificate of Destruction after every shred.

• Hard drive destruction – When substitute checks and other sensitive documents stored in digital form are no longer needed, it is important to physically destroy the hard drive. This is the only way to guarantee that documents cannot be recovered. Speak to your document destruction company. 

Learn more about the Check Clearing for the 21^st Century Act and how to ensure you're in compliance/