We haven't really gotten the hang of Check 21 yet. We're still trying to absorb information.

Anyway, our IT Manager comes to me today and shows me our first "substitute check" that came from some bank in Michigan that one of our customers had sent to a business in Michigan to pay for some product.

Her question was "So what is the difference between this and the original check?"

I honestly didn't know how to answer her.

Any help Mary Beth?

Thanks,

A substitute check will have legal effect as a new type of negotiable instrument beginning 10/28/04. It will be a paper reproduction of the original, printed in full duplex mode (meaning front and back will be printed). The front of the check image will be on the front, the back of the check image will be on the back. There will additionally be other information required to be on it before it can be considered a true substitute check. For example, it must contain the legal legend that tells the recipient that it is a legal copy of their check and can be used the same as the original. It must also have an added MICR line that is a replica of the original, making it suitable for automated processing. What will be different is that in the forward collection process, the MICR line will have a "4" in position 44. A return item substitute check will have a "5" in that position.

It must also show, in specific designated areas on the front, the truncating bank's routing number and the date of truncation, the routing number of the bank that created the substitute check and the date.

Plus, it must conform in check stock, dimensions, aspect ratio, etc. to accepted standards for checks.

This substitute check has both the front and back of the original check on the front of the substitute check. No information is visible or readable on the image of the back of the original check.

What benefit does our bank receive from getting a paper substitute check back from this bank instead of the original paper check?

I guess maybe when my bank will be able to receive electronic cash letters there may be some benefit.

I hope this Check 21 works better than the "stored value card" visionary idea of several years ago.

Thanks

In addition to all the "special" information the substitute check must contain (legal legend, identities of institutions that have truncated or created the substitute check, etc.) the substitute check must also reflect the chain of endorsements.

As for the "benefit" of getting a paper substitute instead of the original, there is none. The benefit is for the other banks up the chain. They can keep the original, create an image, and can pass on an image if the next party agrees. If they don't, they still don't have to scrounge through batches to produce the original; they can simply crank out a substitute check and any party must accept a substitute check.