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Check 21: Ten Customer Questions You Can Count On - George Milner

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Check 21: Ten Customer Questions You Can Count On
By George Milner

Can you remember the introduction of the Privacy Act? How about the PATRIOT Act? What was one thing they both had in common? Customer questions. And more questions. And along comes Check 21.

Think about it from your customers' point of view. They've spent their entire lifetimes sorting through their checks each month as they reconcile their statements. Many probably have drawers filled with checks, organized numerically and instantly ready for inspection. If you think the changes brought about by Check 21 will pass unnoticed you'd better think again.

What can you do?
You can study the Check 21 legislation until you have it down cold. That's your job. But your customers rely on you for this information. Do you know what to tell them?

Here is a list of ten questions you're likely to get from your customers and members.

Question: What happened to my checks?
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.

Question: What if I need a copy of my check?
Answer: You will be able to receive a copy of your check, just as you could today. Under certain circumstances, we could also produce a "substitute check," if necessary. 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.

Question: Will the substitute check look just like the original?
Answer: It will have about the same dimensions as a business check, and include an image of your original check, but it will 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."

Question: What will happen to my original check?
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).

Question: What happens if there is an error when a check is truncated and converted to an image (or subsequently to a substitute check)?
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 (the amount 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.

Question: Will I be charged extra for my check to be converted into an image?
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.

Question: If the check clears more quickly, will I get my money sooner?
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.

Question: What happens if I deposit a check into my account to cover checks that I've written?
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.

Question: What about fees for substitute checks?
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.

Question: When does this law take effect?
Answer: One year from the date the legislation is signed into law -- October 28, 2004.

That's a Start
The law contains disclosure/notice requirements, and the Federal Reserve Board has published model forms and clauses for an institution to use to describe the required notice items.

Will your customers come up with more questions? No doubt. But with good customer education, the process should move forward smoothly. Good luck!

First published on 10/27/2003

Last updated on 10/15/04

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