I have heard through the grapevine that some banks are fairly far along in developing substitute checks. If substitute checks are presented through the payments system before 10/28, do you plan on paying these items or returning them? The legal equivalent issue seems to compel a paying bank to return the item if the bank does not have an agreement with the reconverting bank to process the substitute checks.

We have received (and paid) these items as in most cases they process better than the original check. At this point there isn't a "4" in position 44 so they are difficult to detect (unless you hand sort your inclearings). There is a disclaimer on the back similar to the "Photo in lieu" language so we feel we are adequately protected. We have not had any problems with these items (so far).

Do not take this as not legal advice as I am not a lawyer.

To my understanding if you are now receiving substitute checks before October 28, then you are not obligated to accept (pay) the item.
All banks are required to accept a substitute check come October 28. An agreement is not required. If you engaging in Image Exchange, then yes an agreement is required between the two banks.

We're not paying these items. We're returning them to the reconverting bank because of the lack of legal equivalent nature of the substitute check. We have some banks with which we have agreements and we process those substitute checks/images, but we are waiting till 10/28 to begin processing substitute checks for banks with which we don't have exchange agreements.

You are technically correct in your actions but how are you catching all of the items that are presented in your cash letter? Are you looking at each check manually? Also, do you eventually get the original check back to process or is the check coming back as a photo in lieu?

The verbage on the one item we saw was similar to the verbage we see on check-by-phone checks used by collectors (ie: Your customer has authorized us to create this document to charge their account.) Wouldn't the substitute check scenario be better as at least you have the copy of the original check with the customers signature?