On October 28, 2004, a new law - known as Check 21- will go into
effect to improve the overall efficiency of check payment systems.
Banks will accept substitute checks, made from electronic images,
as the legal equivalent of paper checks. As an image-capable institution,
we can help ensure a smooth transition for your organization.
How will
Check 21 transform the check payment process?
What is check truncation?
What is a substitute check or an Image Replacement
Document?
What does a substitute check look like?
Are all checks eligible for conversion
to a substitute check?
Do all institutions have to accept substitute check
presented for collection?
What happens to my original check?
Will my paid original checks be returned with my
paper statement?
Does Check 21 apply to all types of customer accounts?
Can my organization choose not to adopt the provisions
of Check 21?
How is check truncation different from check conversion?
How will Check 21
transform the check payment process?
Traditionally, banks rely on physical transportation, such
as planes and trucks, to deliver checks between banks for payment.
Check 21 fosters an electronic check collection system for the
country by allowing paper checks to be truncated--or removed--from
the check collection process and replaced with electronic image
files. Image files can be electronically transmitted from one
bank to another and cleared through the check-clearing network,
reducing the banking system’s dependence on physical transportation
that is subject to uncontrollable delays, such as weather or natural
disasters. To facilitate check truncation, Check 21 authorizes banks
to create a paper reproduction--or substitute check--of the original check
from the image file. The substitute check becomes the legal equivalent
of the original paper check, giving banks the option to use substitute
checks in the collection process.
Back to top
|
| |
What is check truncation?
Check truncation is the process of removing an original paper check from
the check collection process prior to it reaching the paying bank. With
Check 21, a substitute check, or electronic image of the original paper
check, replaces the original check in the collection process and is cleared
through the check-clearing network.
Back to top
|
| |
What is a substitute
check or an Image Replacement Document?
A substitute check, also called an Image Replacement Document or IRD, is
a paper reproduction of an electronic image of an original paper check. The
reproduction contains an image of the front and back of the original check
and conforms in paper stock and size to the original. It includes the legend: "This
is a legal copy of your check. You can use it the same way you would use
the original check. ” A MICR line containing all the information appearing
on the MICR line of the original check makes it suitable for automated processing
in the same manner as the original check.
Back to top
|
| |
What does a substitute
check look like?
Here is an example
of a substitute check.
Back to top
|
| |
Are all checks eligible
for conversion to a substitute check?
Yes. All checks are eligible for conversion (by any bank involved in the
clearing process) to a substitute check or IRD, including, but not limited
to, corporate checks, consumer checks, money orders, traveler’s checks,
convenience checks and government warrants.
Back to top
|
| |
Do all institutions
have to accept substitute checks presented for collection?
Yes. Substitute checks are the legal equivalent of the original paper checks
for all purposes. All institutions must accept them as if they were the original
checks.
Back to top
|
| |
What happens
to my original check?
An original check may be destroyed by the processing bank that truncates
it once it has been converted to a digital image. There are no requirements
governing the retention of original checks. Substitute checks are legal
substitutes for proof of payment.
Back to top
|
| |
Will my paid
original checks be returned with my paper statement?
No. Once the bank where your check is deposited, or any other entity in
the check clearing process, truncates the check and converts it into an
electronic image, the paper original will no longer be available. For example,
if you write a check to the Internal Revenue Service and that paper check
is truncated, you will not receive your original check with your statement.
Today, many customers have elected to receive their statements without
cancelled checks enclosed. These customers will probably not notice the
changes that are occuring due to Check 21. Customers who had been receiving
their checks in their statements will now receive an imaged statement.
An imaged statement organizes the images of all cancelled checks, substitute
checks and deposits on easy to read pages. An IRD (image replacement document)
of any check can be created upon request for a nominal fee.
Back to top
|
| |
Does Check 21
apply to all types of customer accounts?
Yes. Check 21 applies to all types of accounts with check access.
Back to top
|
| |
Can my organization
choose not to adopt the provisions of Check 21?
No. All organizations and their customers must adhere to the provisions
of the Check 21 legislation.
Back to top
|
| |
How is check
truncation different from check conversion?
Check conversion is the process of converting a paper check into an Electronic
Funds Transfer (EFT) transaction for clearing through the Automated Clearing
House (ACH) network. In this process, there is no image of the check. The
provisions of Check 21 do not cover converted checks. The types of check
conversions you may be familiar with include:
- Accounts Receivable Check conversion (ARC) occurs when a consumer
sends a check payment to a company that, in turn, converts it
to an electronic transaction and clears it through the ACH network.
The item is posted on your statement as an electronic item and
there is no image.
- Point of Purchase (POP) conversion takes place at the time
the check is written for an over-the-counter transaction. The
cashier swipes the check to capture account information, and
the transaction is cleared through the ACH network. The voided
check is returned to the check writer.
Back to top
|
| |
