The Check Clearing for the 21st Century Act, or Check 21, went into effect on October 28, 2004. This legislation, passed by Congress and signed into law by President Bush is aimed at improving the efficiency of the nation’s payment systems and incorporating electronic technology that will streamline the traditional check processing system banks have relied upon for many years. The law requires all financial institutions to accept “substitute checks” in lieu of original checks.
- To facilitate check truncation (removal of original check from check collection stream and replace with an electronic copy or substitute check);
- To foster innovation in the check payment system without mandating receipt of checks in electronic format; and
- To improve the payment system overall.
- To authorize the use of a new negotiable instrument that will help facilitate the broader use of electronic check processing without mandating that any bank change its current check collection practices.
A substitute check is a paper reproduction of an original check that contains an image of the front and back of the original check. A substitute check is the legal equivalent of the original paper check. It can be processed in the same manner as the original paper check and parties cannot refuse to accept it.
A substitute check contains:
- An accurate image of the front and back of the original check
- A MICR line containing all the information that was on the original check
- A format that conforms to industry standards for substitute checks
A Magnetic Ink Character Recognition (MICR) line includes the numbers, which may include the routing number, check number, check amount, and other information, that are printed near the bottom of the check in magnetic ink in accordance with American National (hereinafter ANS X9.13) Standard Specifications for placement and location of MICR printing, X9.13 for an original check and American National Specifications for an Image Replacement Document – IRD, X9.100-140 (hereinafter ANS X9.100-140) for a substitute check.
Once a substitute check has been created, your original check will be taken out of circulation. Some financial institutions may store your check for a certain amount of time and others may destroy the original once it has been truncated.
Check 21 may reduce the time that it takes for checks to clear if one of your checks is truncated (see definition). Texas State Bank is required to accept substitute checks, as are all financial institutions in the United States. If you are accustomed to receiving your original checks back with your statement, you may still get some of them back, however, you may also receive substitute checks from those banks that truncated your checks.
Truncate means to remove an original check from the forward collection or return process and send to a recipient, in lieu of the original check, a substitute check or by agreement, information relating to the original check (including data) taken from the MICR line of the original check or the electronic image of the original check whether with or without the subsequent delivery of the original check.
This should not happen. Financial institutions that create substitute checks must warrant that they will not process the original check. In the unlikely event that it does happen, please contact us. A consumer may make a claim for a re-credit with the bank that holds the consumers’ account in accordance with the timing, content, and form requirements. The new law provides redress for this, and we will work with you to resolve the problem and re-credit your account. Check 21 re-crediting rights are only available to consumers.
In certain cases, federal law provides a special procedure that allows you to request a refund for losses you suffer if a substitute check is posted to your account (for example, if you think that we withdrew the wrong amount from your account or that we withdrew money from your account more than once for the same check). The losses you may attempt to recover under this procedure may include the amount that was withdrawn from your account and fees that were charged as a result of the withdrawal (for example, bounced check fees).
The amount of your refund under this procedure is limited to the amount of your loss or the amount of the substitute check, whichever is less. You also are entitled to interest on the amount of your refund if your account is an interest-bearing account. If your loss exceeds the amount of the substitute check, you may be able to recover additional amounts under other laws.
If you use this procedure, you may receive up to $2,500 of your refund (plus interest if your account earns interest) within 10 business days after we receive your claim and the remainder of your refund (plus interest if your account earns interest) no later than 45 calendar days after we receive your claim.
We may reverse the refund (including any interest on the refund) if we later are able to demonstrate that the substitute check was correctly posted to your account.
It will take some time for the full effects of Check 21 to be felt. However, over time you may see the following benefits:
- Checks and deposits will clear faster and more consistently
- Retrieving copies of checks and other documents will be easier
- An enhanced customer banking experience due to additional image technology
- New producs and services that will help you better manage your finances
If you need additional information please contact our Check 21 Hotline at (866) 926-7964. Also, you can click on the following link to learn more about the Check 21 Act.
http://thomas.loc.gov