Check Clearing for the 21st Century Act (Check 21)

The Check Clearing Act for the 21st Century (Check 21) was signed into law by President Bush October 28, 2003 and will become effective October 28, 2004.  Check 21 allows banks to replace original paper checks with "substitute checks" that are made from digital copies of the originals. 

Check 21 was created to reduce the time, risks and costs associated with paper check processing.  Currently, checks travel on trains, planes and automobiles during the clearing process.  When Check 21 becomes effective, banks will be able to send digital images of checks electronically, eliminating the need to physically transport paper checks between banks.

The check processing system will be more efficient, without changing the way consumers write checks.

Question: When does this law take effect?
Answer: One year from the date the legislation is signed into law -- October 28, 2004.

Question: Why was Check 21 created?
Answer: Check 21 was created to reduce the time, risks and costs associated with paper check processing. Currently, checks travel on trains, planes and automobiles during the clearing process. When Check 21 becomes effective, banks will be able to send digital images of checks electronically, eliminating the need to physically transport paper checks between banks. Check 21 will also reduce uncontrollable transportation delays that can be caused by weather or natural disasters.

Question: Is Check 21 mandatory?
Answer: Check 21 does not mandate electronic processing of digital check images. It simply makes it possible.

Question: What happened to my checks?
Answer: New legislation aimed at improving the efficiency of our country's payment system allows checks to be "truncated". This means the original paper check is removed from the check processing system. The bank that truncates can then pass on a substitute check which is a paper copy that is the legal equivalent of the original. They can also pass on the image if the next institution in the chain agrees to accept an image.

Question: What is a substitute check?
Answer: A substitute check is a paper copy of the digital image of your original check – both front and back, with all endorsements – and is about the size of a business check. Check 21 legislation sets standards for quality and allows for substitute checks to be legal copies of the originals. All banks must accept the substitute check as they would the original document.

Question: Will the substitute check look just like the original?
Answer: It will have the same dimensions as the check you originally wrote, but it has additional information on it, including the identifying number of the bank that truncated the item, the identifying number of the bank that created the paper substitute check, and a second MICR line at the bottom, for starters. It will be presented on two sides, just as your original is, and should show the endorsements that have been applied as the check has gone through the clearing system. You will be able to use a substitute check to prove that the check was written and cleared through the system. It should bear the following language: "This is a legal copy of your check. You can use it the same way you would use the original check."

Front:

Back:

Question: Are substitute checks an acceptable proof of payment?
Answer: Yes, everyone must accept substitute checks beginning October 28, 2004.

Question: What items are subject to Check 21?
Answer: All checks, including cashier’s checks, payroll checks, personal checks and business checks are subject to Check 21. Savings bonds are not checks and therefore are not subject to Check 21.

Question: What will happen to my original check?
Answer: Not all checks will be truncated. The institution that converts your check to an image may destroy the original check. We will then receive a substitute check that has been created. Since substitute checks are legal copies of your original check, there is no need to save the original. That is why some of the images of your original checks will show up on your statement as an image of a paper reproduction of the original (substitute check).

Question: What if I need a copy of my check?
Answer: You will be able to receive a special kind of copy of the check called a "substitute check". The substitute check will be treated the same as the original check under state and federal law. The new Check 21 Act says: "A substitute check shall be the legal equivalent of the original check for all purposes", if certain conditions are met.

Question: How will my check statements be affected?
Answer: Your account statement will not be any different. It will continue to list your checks sequentially by number. You will receive an image of any substitute check as an image of a paper reproduction of the original just like you would receive an image of the original check.

Question: How will Check 21 impact me?
Answer: Check processing will be faster with the implementation of Check 21. Funds may be removed from your account sooner than in today’s system. Therefore, there will be less “float time.” As always, make sure you have enough money in your account before writing a check.

Question: Is there some way that I can always get my original checks back.
Answer: The Act makes it very clear that this is not an option. However, an image of the substitute check will appear on your statement in the same place on the statement that an image of the original check would have appeared.

Question: Will I be charged extra for my check to be converted into an image?
Answer: No. At this time, there will be no additional charges for the image processing of your check. In fact, the process will allow checks to clear more quickly, reducing fraud.

Question: What about fees for substitute checks?
Answer: There may be a fee to produce copies of substitute checks just as there is a fee to order past copies of your monthly statements.

Question: Will Check 21 help fight check fraud?
Answer: Fewer individuals will come into contact with your information during the check clearing process because check 21 allows your original check to be physically removed from the system. The minimized need for human contact will greatly reduce your potential exposure to identity theft. Rest assured that electronic transmission of check data will be securely safeguarded.
Additionally, the amount of time between when a check is written and when the funds are actually debited from the account will be reduced. This enhancement will reveal fraudulent activity sooner. The earlier criminal activity is revealed, the greater the likelihood of catching the individual illegally using your account.

Question: What happens if there is an error when a check is truncated and converted to an image (or subsequently to a substitute check)?
Answer: Check 21 provides consumers with specific rights regarding disputes. If you feel that your substitute check is inaccurate, contact your bank as soon as possible. The bank will provide a form for you to complete and request that you put the required information in writing. We will investigate your claim and make you aware of any necessary adjustments. These adjustments could potentially include re-crediting your account.

Question: How does Check 21 relate to electronic check conversion (e-check)?
Answer: Check 21 involves creating digital images of original checks, but they are still processed under the same laws and regulations as paper checks.
On the other hand, electronic check conversion, or e-check, occurs when a check is converted into an electronic funds transfer. The transaction is then routed through the Automated Clearing House (ACH) network, the same system used by Direct Deposit.
On your monthly statement, a substitute check will be listed with your other checks; an e-check will be listed with other electronic funds transfers, such as automated debits for health club memberships or a payment setup with a utility company.