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Abstract

The Check Clearing for the 21st Century Act' (Check 21 Act) was introduced to Congress by the Federal Reserve System, enacted by Congress, signed by the President on October 28, 2003, and became effective one year later, on October 28, 2004. It makes a modest change in the check-clearing system designed to speed the movement of checks from the depositary to the paying bank. It is anticipated that it will eventually lead to what is called "electronic presentment," a process that may make the clearing of checks almost as swift as today's electronic payment systems.

In this way, the Federal Reserve has given a kind of imprimatur to the checking system and added to its life. The checking system iseven with the Check 21 Act modification-the oldest, slowest, most expensive, and easily the most complex of the payment devices in use. Checking has its roots in the Middle Ages2 where, along with the bill of exchange and early forms of promissory notes, checks were traded in the fourteenth century merchant fairs and litigated in the merchant "pied-poudre" courts. The device moved indoors in the eighteenth century largely through a series of cases before the King's Bench and decided by stellar judges such as Lord John Mansfield. The law was codified in the English Bills of Exchange Act of 1882 and received in the United States in the first uniform law, the Uniform Negotiable Instruments Law of 1895. Checks are currently governed by four different laws: Article 3 of the Uniform Commercial Code (U.C.C.), Negotiable Instruments; U.C.C. Article 4, Bank Deposits and Collections; 12 C.F.R. pt 210 [hereinafter Regulation J], and 12 C.F.R. pt. 229 [hereinafter Regulation CC]. The interrelationship of these laws almost defies understanding.

Starting about ten years ago, both the number and the volume of checks started to decline.5 Simpler, cheaper, and faster payment devices like credit and debit cards, and electronic payments, including internet payments and the Automated Clearing House system, were gradually replacing checks as the payment systems of choice. It was widely anticipated that checks would simply phase out of use and become an ugly memory. Through the Check 21 Act, the Federal Reserve has stalled this evolution and given new life to the checking system.

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