The Check Clearing for the 21st Century Act (Check 21 Act) facilitates significant change in the way checks are processed in the United States. All banks will be affected by this law even if they do nothing to change their current check processing operations. All customers (consumers and businesses) are affected by the Check 21 Act in that they have the potential to receive a substitute check.
The purposes of the Check 21 Act are:
- To facilitate check truncation (removing the paper check from the check processing system, in other words, not sending checks back to you, the customer)
- To foster innovation in the check payment system without mandating receipt of checks in electronic format; and
- To improve the payment system overall
The effective date of the regulation is October 28th.
It is important to realize that Check 21 does NOT mandate check imaging. Customers do NOT have to do anything different.
Check 21 does encourage financial institutions to exchange check images electronically. This will speed up the processing of checks. Ultimately this means that checks will clear on the SAME DAY as they are deposited.
Check 21 creates a new negotiable instrument, called a "substitute check." If the substitute check meets the Act's requirements, then it is the legal equivalent of the original paper check. Parties cannot refuse to accept a substitute check that meets the Act's requirements. "Parties" includes everyone: other banks, paying customers, depositing customers, consumers, corporations, Federal Reserve, processors, etc...
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 checks, U.S. Treasury checks, money orders, traveler's checks, and drafts.
The Act includes a new expedited recredit feature for consumers who receive substitute checks. A consumer receiving a substitute check may make an expedited recredit claim if a substitute check was improperly charged to the consumer's account or the consumer has a warranty claim and suffers a loss.
Click here for information on substitute checks.
Substitute checks are paper reproductions of the original check that:
- Contains an image of the front and back of the original check.
- Bears a MICR line containing all information appearing on the MICR line of the original check.
- Conforms, in paper stock, dimension, and otherwise, with generally applicable industry standards.
- Is suitable for automated processing.
- They may also be called an "Image Replacement Document" (IRD).
If you have questions about how the Check 21 Act will affect you, please call
(989) 631-4280 or
1-800-968-4280 (toll free) and we will answer any questions you may have.
