Check 21 101 for Members and Customers
(Note from Editor: When Check 21 becomes fully operative on October 28, 2004, the major part of the actual processing, clearing and posting of checks will not touch the branch office at all. But the effect of the change will certainly create the need for communication and dialog between customer service people and account holders. This training page is for that person who has to explain Check 21 to the member or customer.)
Goal of Check 21
We call it Check 21, although the official name of the Act is The Check Clearing for the 21st Century Act. Basically it allows banks to do away with original paper checks and instead transmit electronic images. The goal of the new way of presenting and collecting checks is to do away with the necessity of original paper checks being physically transported all over the country and to speed up the process of collection of funds.
Affect on You
It will affect you in different ways. For one thing, checks you write will clear sooner, so you'll want to be sure you have money in the account before you write the check. Eventually, when all financial institutions are capable of total electronic clearing, it will mean your deposits will be available much sooner, too.
You may also notice a change in your monthly statement of your account. If you get back actual, original checks now, you may begin to receive a combination of original checks along with some substitute checks. Financial institutions that supply statements with images of their account holder's checks on it that are created by the bank itself may have some original check images and some images of the substitute checks. Of course, members or customers who currently receive only a record of check number, amount and date paid will not find their statement affected at all.
You see, the person or business you sent the check to may deposit it in a financial institution that has decided to do electronic clearing. So they send an electronic image of the check through the Federal Reserve system to us for payment, and they keep the original check. They can decide how many days they'll keep the original check before they destroy it. Or it may be the depositary bank, or Federal Reserve Bank along the collection route that keeps your original and sends an image. The point is, the original will more than likely never make it back to us. But because we send cancelled checks back to our customers in their statement, we'll get a substitute check instead. That will be included in your statement instead of the original. According to the law, that substitute check is now the original check.
Even at financial institutions that don't return cancelled checks in with their statements, their depositors can retrieve a copy of the front and back of the original check for seven years from the payment date. This official copy is called a 'substitute check' and can now be considered a legal copy. It even says right on the face of the copy, "This is a legal copy of your check. You can use it the same way you would use the original check."
Substitute Check Provides
Proof of Payment
If you have a problem with someone who says they didn't receive your check, you can take the substitute check to prove your payment, just as you would an original check. It carries the same weight. If there is a problem of any kind regarding the check, it can be taken to court and will be recognized as a legal copy of the original.
Safer Method of Clearing
Under the old method of clearing, your original check actually changed hands from bank to bank in order to get paid. It had to be packaged and transported and then made part of a daily settlement between banks. Under the new process, the only thing that travels is an image of the check, over the wire. Much faster, much safer - less chance of anyone stealing your account information or your identity.
Different from e-checks
You may be using checks now that you give to merchants, and they take the check, scan it, and get your authorization with a PIN, and then they may stamp the check "Paid" or "Void" and give it back to you. That transaction actually goes through the Automated Clearing House network. It will still appear on your statement as an electronic transaction. A substitute check, on the other hand, is a copy of an image that was processed as a check.
Protection for Consumers Built-in
Parts of the law protect you from double payments or other claims by means of specific recrediting rights. If you think the substitute check is wrong or fraudulent, you need to contact us immediately."
This page is from the materials folder of the Check 21 video (available late June, 2004) from the Bankers Video Library. For information or to preorder the video, call (800) 660-0080 or visit the Banker Store at BankersOnline.com. Page used by permission.
Copyright © 2004 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 14, No. 2, 5/05
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