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What is Check 21?
Effective October 28, 2004, the Check Clearing for the 21st Century
Act - or Check 21 will bring the nation’s check payment
system into the digital age and allow consumers to benefit
from better and faster financial services. Improved efficiency
in check processing is the main goal of Congress with the enactment
of “Check 21”. Check 21 will improve today’s
existing system that forces over 40 billion checks a year to
be exchanged physically and often transported around the country
several times before the payment cycle is completed.
How will Check 21 benefit you?
Detects Fraud Faster - Since check clearing is faster, fraud
can be detected and investigated sooner, which brings about
a quicker resolution. Faster Check Clearing - You get a more
accurate picture of your account balance. Quicker Response
- Check images can be accessed faster to resolve questions.
More Secure Check Information – Checks do not have to
be physically transported via truck, train or plane.
How? With a
Substitute Check…
Check 21 allows a new approach - it makes legal a Substitute
Check, which is a digital picture of your original check (showing
the front and back with a magnetic ink character recognition
line and all of its routing data), which can be process electronically.
A substitute check is the legal equivalent of your original
for all purposes including requirements of state and federal
law. The substitute check will feature, in bold print, a legend
that states, “this is a legal copy of your check - you
can use it the same way you can use the original check”.
A substitute check provides legal proof that you made payment.
Check images will continue to be legal proof of payment as
well. You may receive a substitute check when you request a
copy of your check.
Consumer Protection
If a consumer believes that a substitute check was not properly
payable, he or she may file an “expedited re-credit” from
the paying financial institution, within 30 days. The financial
institution must investigate any claim and in most cases either
resolve the claim within 10 business days, or provide the consumer
with an expedited recredit of up to $2,500.00 pending completion
of the investigation. In general, 45 calendar days is the limit
to conclude the investigation and make a final determination.
When?
Check 21 becomes effective on October 28, 2004 and that is when
all financial institutions will have to accept substitute checks
the same way they are required to accept paper checks. As you
receive your statement, you may also see some information about
the substitute checks mentioned above. Remember, the substitute
check contains exactly the same information shown on your original
check and it is considered a legal equivalent.
Important Note
Please remember, since these changes may drastically reduce the
amount of time it takes to move money from your account to
pay those who receive your checks, you will need to have sufficient
funds in your account to cover the payment at the time you
write the check.
FAQs
| Question: |
What happened to my checks?
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| 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
collection or return process and an electronic image of the
item is created in lieu of the original item. The bank that
truncates can then pass on a substitute check, which is a
paper copy that is the legal equivalent of the original,
or can pass on the image, if the next institution in the
chain agrees to accept an image.
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| Question: |
What if I need a copy of my check?
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| 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.
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| Question: |
Will the substitute check look just like the original?
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| Answer: |
It will have
the same dimensions as the check you originally wrote, but
it have 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."
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| Question: |
What will happen to my original check?
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| Answer: |
Not all checks
will be truncated, so if you have been accustomed to getting
your original checks back, you may still get some of them
back (although it appears that a majority of institutions
will be using purely imaged statements, rather than hassling
with creating statements that contain a mixture of original
checks and substitute checks. The institution that converts
your check to an image may destroy the original check. That
is why some of your original checks will not show up along
with your statement. If you are accustomed to only receiving
the originals, you will instead receive some substitute checks
(paper reproductions of the originals).
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| Question: |
What happens if there is an error when a check is truncated and converted to an image (or subsequently to a substitute check)?
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| Answer: |
If there is an error relating to a substitute check (a
paper reproduction of the original made from an image)
that relates to the actual substitute, there is a process
by which a consumer customer can make a claim for expedited
recredit. There is a time deadline for the claim to be
made (40 days after the customer receives the statement
or substitute check) and the bank has a deadline for dealing
with the claim if it is properly made. By the end of the
10th business day following the business day the claim
is made, the bank must either turn down the claim, approve
the claim, or at least provisionally recredit the account
for the lesser of $2500 or the amount of the check, pending
further investigation. The final investigation, and final
decision, must be concluded by the end of 45 calendar days
from the date the claim is made. Once the investigation
is finished, either the provisional credit becomes final,
or a further refund is made (over $2500, if the amount
of the substitute check was over $2500), or the bank will
reverse the provisional credit if it determines the claim
is not valid. NOTE: The expedited recrediting procedure
does not apply if the customer receives the original check
or an image or a mere copy of an image (rather than a substitute
check, which is a paper reproduction that is the legal
equivalent of the original). The consumer recredit rights
are explained in a notice, which must be provided to all
customers who will be receiving substitute checks.
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| Question: |
Will I be charged extra for my check to be converted into an image?
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| 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.
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| Question: |
If the check clears more quickly, will
I get my money sooner?
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| Answer: |
No. The legislation
does not affect the hold times placed on deposited items.
But it does mean that the actual funds will make their way
through the system more quickly and it reduces the time that
you'll wait for checks to clear if one of your checks is
truncated.
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| Question: |
What happens if I deposit a check into
my account to cover checks that I've written?
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| Answer: |
Deposits should
be made before checks are written. With the checks clearing
more quickly, you'll need to make sure that you have a high
enough balance in your account to cover any checks you write.
Depositing funds to cover already-written checks may result
in overdraft charges if the deposited funds are not available
before your checks clear.
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| Question: |
What about fees for substitute checks?
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| Answer: |
There may be
a fee to produce a copy of a substitute check, just as there
may be a fee to order past copies of your monthly statements.
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| Question: |
When does this law take effect?
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| Answer: |
October 28, 2004 - One year from the date the legislation
is signed into law.
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