Check 21 — Check Clearing for the 21st Century Act
An introduction to a new era of
check processing — Check 21
President Bush signed Check21 into law on October 28, 2003. This new banking legislation was developed by the Federal Reserve Bank and other banking organizations to help financial institutions modernize the way check payments are processed without mandating expensive investments in equipment.
Created to reduce the time, risks and costs associated with paper check processing and transportation, this new law goes into effect on October 28, 2004. Under the current system, banks rely on air and ground transportation to deliver checks between banks for payment — often extending the time it takes to present the check to the paying bank. After the September 11 terrorist attacks forced the shutdown of air transportation for several days, it became apparent a more efficient means of processing checks needed to be instituted.
While you might notice minor changes to your checking statement, Exchange Bank would like to familiarize you with how Check 21 will improve the way in which banks process checks. To prepare you for what lies ahead, we have prepared answers to some frequently asked questions to help provide a greater understanding of the Check 21 process.
Why was Check 21 created?
Check 21 was created to reduce the time, risks and costs associated with paper check processing and transportation. Check 21 allows original paper checks to be removed from the collection process and be replaced with substitute checks created from digital image files. Banks can send check images electronically, reducing dependence on transportation that can be impacted by uncontrollable delays, such as weather or natural disasters. This evolution of processing checks by sending electronic images is also known as Image Exchange.
What is a substitute check, and
what does it look like?
A substitute check is created by a bank and is a paper reproduction of a digital image of an original check. The substitute check contains an image of the front and back of the original check and conforms to banking industry standards for quality.
A substitute check must also include information identical to the information on the original check. The bank that creates the substitute check must warrant that the check meets the requirements of being a legal equivalent of the original check. The substitute check must also bear the following legend:
This is A LEGAL COPY of your check.
You can use it the same way you would use the original check.
When will I encounter substitute
checks under Check 21?
After October 28, 2004, you can expect the following:
If you currently receive cancelled checks or check images with your Exchange Bank statement, you might receive a combination of your original cancelled checks and some substitute checks. If you have check safekeeping and your cancelled checks are stored at Exchange Bank, images of substitute checks might be stored in place of the original checks. If you have online access to your account transactions, images of your checks and substitute checks will be available for viewing.
What does this mean to me?
When you write a check for services, the bank that deposits your check may choose to truncate it. Truncating means that an image is taken of the front and back, and the original check is destroyed. The image of the check along with the information encoded at the bottom of your check is sent for clearing. If we receive an image of the item in lieu of a paper check, you will see the image of the item on your image statement as a substitute check.
Which checks are eligible to
become substitute checks?
All checks, except foreign checks, are eligible to become substitute checks including, but not limited to, the following:
- Consumer checks
- Business checks
- Corporate checks
- Government warrants
- U. S. Treasury checks
- Money orders
- Controlled disbursement checks
- Payable through drafts
- Travelers’ checks
Do I have to accept substitute
checks as proof of payment?
Yes. Once a paper check is converted into a substitute check, it becomes the legal equivalent of the original paper check. Any bank or person must accept them as if they were the original checks.
Am I allowed to “opt out” of Check 21?
No. Once Check 21 legislation goes into effect in October 2004, it will apply to all financial institutions and their customers. By law, there are no “opt out” exceptions.
What are the primary benefits of Check 21?
While the effects of Check 21 on banking will be very gradual, over time you might notice the following:
- Checks and deposits will clear faster and more consistently.
- Retrieving copies of checks and other documents will be easier.
- Some cancelled checks returned in your statement may be replaced by substitute checks (a paper reproduction and legal equivalent of an original check).
- A lower potential for check fraud due to the reduced time it will take to process checks.
What if I need a copy of my check?
You will be able to request a copy of a substitute check just as you have in the past with a copy of your original check. The substitute check will be treated the same as the original check under state and federal law.
If checks clear more quickly, will
I get my money sooner?
No. The legislation does not affect the hold times placed on deposited items. However, the efficiencies with the new process will mean that the funds will make their way through the system more quickly, reducing the time that you wait for your checks to clear.
How will Check 21 affect float?
With the efficiencies created by Check 21, customers will no longer enjoy the benefit associated with writing a check today, knowing that it will not clear for several days. This period is commonly referred to as float.
Checks you write should clear sooner, raising the possibility that some checks will be returned if non–sufficient funds (NSF) are in your account when you write the check. You should not write checks for amounts that can’t be covered by funds already in your checking account. It is unlawful.
Will this change affect
Point–of–Sale transactions?
In time, the convenience of check imaging will even extend to point of sale. You may have already experienced this process at a merchant location. As you pay for goods and services, a small machine is used to scan the check and convert the physical check into an electronic image that can be transmitted and processed.
A gentle reminder
Now more than ever, it will be important for you to write checks with black or blue ink. With the creation of Check 21, it will be imperative that the original check be legible and that the ink is visible when creating a substitute check.
Since the full impact of the Check 21 regulations are evolving, we will continue to update you as new information becomes available. For more information contact our Telephone Customer Service Center at 707–524–3000.
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