The Check Clearing for the 21st Century Act.
Check 21
Five important facts you need to know up front:
- This law helps to improve the security and stability of our nationwide financial system.
- You won't get your original checks back.
- The float time is going to be reduced.
- It is not your bank's fault.
- You can't avoid Check 21 by moving to another financial institution.
Frequently Asked Questions
1) What is "Check 21?"
Check 21 is the common name for the Check Clearing for the 21st Century Act which was passed into law on October 28, 2003. To make check processing easier, this federal law permits banks to replace original checks with "substitute checks."
2) When will Check 21 go into effect?
Check 21 becomes effective on October 28, 2004. On that date all financial institutions will have to accept substitute checks the same way they are required to accept paper checks.
3) Why do we need Check 21?
Check 21 will bring the nation's check payment system into the digital age and allows customers to benefit from better and faster financial services. Currently, the check processing system relies on physically transporting paper checks from one location to the next, costing millions of dollars each year. In the event of a natural disaster or extreme weather, the system can get slowed down or come to a grinding halt. By creating an electronic image of the check, it can be processed and distributed electronically. This decreases processing time and transportation costs while reducing the likelihood of items being lost or destroyed in transit.
4) What's wrong with the current system?
In today's processing environment, the law requires an actual check to be presented for collection. Physical transportation of these checks is costly, and the float they create can leave financial institutions vulnerable to fraudulent schemes for an extended period of time.
However, the true vulnerabilities of this process were fully exposed during the tragic day on September 11, 2001 when the entire financial system was severely impacted. Checks were delayed days and in many cases weeks because of stoppages in the courier system. This event was a major factor that helped motivate Congress to begin legislation that would reduce our reliance on physical transportation and improve the overall efficiency of the system.
5) What is a "substitute check?"
A substitute check is an electronic image (front and back) of the original check that is the same as the original check for all purposes, including proving that you made a payment. These substitute checks are the legal equivalent of the original check and will bear the legend: "This is a legal copy of your check. You can use it the same way you would use the original check."
A substitute check that meets these requirements is generally subject to federal and state laws that apply to an original check. If you lose money because you received a substitute, you have the right to file a claim for an expedited refund.
Once a substitute check is created, the original check is "truncated" or taken out of circulation. The financial institution that creates the substitute check is responsible for truncating the original check. Depending on their policies, they may either destroy the original check or store it for a period of time.
6) What is an "IRD?"
An IRD is an Image Replacement Document. It's just a fancy technical term for a substitute check, or any other digital image of a financial document.
7) What will I get back with my checking account statement?
Not all the checks you write will be converted into substitute checks. However, if a substitute check is created, you most likely won't see the original check again. If you currently receive your processed checks with your statement, you will begin to notice a combination of substitute checks and original checks. If you currently do not receive your processed original checks, your statement won't change much. All of your cancelled checks will be listed on your statement in the manner they are now.
8) Can I get my original checks back if I request them?
No. Many of the checks you write will come to us in the form of electronic data or images. Your original paper checks will be stored, and later destroyed, by other banks before they reach us. You will not get the original checks back with your statement. You will receive a substitute check with an image of the original check that the law says is the legal equivalent of the original.
9) How does Check 21 affect identity theft and check fraud?
The use of check images instead of paper checks should make it less likely that an identity thief will come into possession of the personal financial information located on your check. The original check is physically taken out of the processing stream, and the security of electronic channels limits human contact with your financial information. Also, since check clearing is much faster, fraud can be detected and investigated sooner. This should result in a quicker resolution to illegal check fraud.
10) How will Check 21 affect the "float" time?
When you write a check and the payee deposits it into his bank, the check will be processed much faster. It will come to us for posting against your account several days sooner than in the past. The float (the amount of time between the writing and the cashing of a check), could be reduced significantly. You will need to have funds in your account sooner to cover your checks and avoid overdraft fees.
11) What if the original check and its substitute get processed?
In order to process a substitute check, a financial institution must guarantee that the original paper check will not be processed. The writer of the check will be able to submit a claim in the unlikely event that the original check and the substitute are both processed.
12) What if the substitute check is not an accurate image of the check I wrote and I need the original to prove my claim?
The Check 21 Act provides customers with specific recrediting rights. If you believe the substitute check does not accurately reflect the transaction, contact us immediately (you may be asked to submit your claim in writing). After receiving your claim, we will thoroughly investigate the matter and, if necessary, recredit your account.
13) In the event of a dispute, what happens if the payee won't accept the substitute check as proof of payment?
The Check 21 Act specifically states that a substitute check is the legal equivalent of the original. Retailers, service providers, and the courts, are all required to accept the substitute check as proof of payment in the same manner as they would accept the original.
14) What's the difference between an electronic check conversion (e-check) and a substitute check?
An e-check is an electronic funds transfer initiated by a check. With an e-check, the transaction is actually routed through the Automated Clearing House (ACH) network. Typically, the retailer takes your check, scans it for the encoded financial information, and gets your authorization prior to initiating the transfer. Once you authorize payment, the original check is stamped "void" and returned to you. The transaction will generally appear on your account statement with other electronic or ACH-type transactions. A substitute check, on the other hand, is a replacement that is the legal equivalent of the original check. It is created from the original image, processed as a check, and will appear on your account statement as a check.
15) I'm not thrilled about this. Why shouldn't I just take my business to another bank?
It wouldn't help. Neither you nor we have any choice in this matter. The Check 21 Act overrides state laws and all account agreements. Every financial institution in the United States is in the same situation.
16) What if I need more information?
Just give us a call.
Sources:
- Consumers Union
- Federal Reserve Board
- American Bankers Association
- Bankers Systems
- Bank Administration Institute
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