To: All Member Banks and Others Concerned in the Third Federal Reserve District

Attention: Chief Executive Officer and Chief Compliance Officer



The Board of Governors of the Federal Reserve System has released final amendments to Regulation CC and its commentary to implement the Check Clearing for the 21st Century Act (Check 21 Act), which was enacted on October 28, 2003, and becomes effective on October 28, 2004.

To facilitate check truncation and electronic check exchange, the Check 21 Act authorizes a new negotiable instrument called a "substitute check." A substitute check is a paper reproduction of the original check that contains an image of the front and back of the original check and can be processed just like the original check. The Check 21 Act provides that a properly prepared substitute check is the legal equivalent of the original check for all purposes. The Check 21 Act does not require any bank to create substitute checks or to accept checks electronically. The Check 21 Act includes new warranties, an indemnity, and expedited recredit procedures that protect substitute check recipients.

The Board's amendments: (1) set forth the requirements of the Check 21 Act that apply to banks; (2) provide a model disclosure and model notices relating to substitute checks; and (3) set forth bank endorsement and identification requirements for substitute checks. The amendments also clarify some existing provisions of the rule and commentary.

The Federal Register notice, published August 4, 2004, is available here (845 KB, 114 pages).

Date: This rule is effective on October 28, 2004, except for model form C-5A in appendix C, which is effective immediately, and paragraph (4) of appendix D, which is effective on January 1, 2006.

For Further Information: Jack K. Walton, II, Assistant Director (202/452-2660), or Joseph P. Baressi, Senior Financial Services Analyst (202/452-3959), Division of Reserve Bank Operations and Payment Systems; or Stephanie Martin, Associate General Counsel (202/452-3198), or Adrianne G. Threatt, Counsel (202/452-3554), Legal Division. For users of Telecommunications Device for the Deaf (“TDD”) only, contact (202) 263-4869.