Frequently Asked Questions

What is Check 21 and what is its purpose?: Check 21 is a federal law that is designed to enable banks to handle more checks electronically, which should make check processing faster and more efficient. Today, banks often must physically move original paper checks from the bank where the checks are deposited to the bank that pays them. This transportation can be inefficient and costly. Check 21 became effective on October 28, 2004.
How does Check 21 affect me?: Check 21 and other check-system improvements mean that checks will be processed faster, meaning money is deducted from your account sooner, allowing for more accurate balancing. Check 21 also means that a substitute check may be issued in place of an original check. These substitute checks or image replacement documents (IRDs) can be used just like the original check for proof of payment or to return a "bounced" check that was deposited into an account.
What are the benefits of utilizing Check 21?: Check 21 will allow your institution to process more efficiently and with greater speed. Courier costs will be greatly reduced, while fraud protection and overall security will be improved. Over time, Check 21 legislation is expected to save the financial industry millions of dollars.
What is Check Truncation?: The process of removing the paper check from its processing flow is called truncation. In truncation, both sides of the paper check are scanned to produce digital images. If a paper document is still needed, these images are inserted into specially formatted documents containing a photo-reduced copy of the original checks, some special words on the left and a new MICR line. These are called "substitute checks" or image replacement documents (IRDs).
Are IRDs exact copies of the original check?: Yes, with some differences, an IRD is a special copy of both the front and back of a check. It may be slightly larger than the original check, but it is formatted to be processed the same way as original checks. The front of the IRD should state: "This is a legal copy of your check. You can use it the same way you would use the original check." Click here to view an example of an IRD.
What are the requirements for IRDs?: It is important to store original MICR data to properly create IRDs. These IRDs must be shrunk only once, and quality standards must be met. It is also important to ensure that duplicate IRDs and/or fraudulent images are not created.
Is my institution required to process IRDs?: Yes, according to the Check 21 Truncation Act, all financial institutions are required to accept valid IRDs and process them with the same validity as paper checks for clearance and settlement. However, it is left to a merchant's discretion whether they choose to accept these legal check copies.
Is my institution required to return original checks to customers?: No, In general the law does not require original checks to be returned. Many banks destroy original paper checks, usually after a pre-determined storage period. Check 21 ensures that IRDs enjoy the same legal protections as original checks.
What happens if there is a problem with substitute checks?: Check 21 provides a special process known as expedited re-credit if you think there was an error made because of a substitute check. This process may be used to get a refund not exceeding the amount of your loss, or the amount of the substitute check, whichever is less, plus any interest accrued on that amount. However, if your loss is more than the amount of the substitute check, you may have rights under other laws to recover additional money. If the claim on the substitute check is found to be valid, a refund of up to $2,500 plus interest will be refunded within 10 business days, with any money exceeding that amount received no later than 45 days after the claim is filed. If the claim is denied, you will be sent notice explaining the decision.
Will my institution have to utilize electronic presentment?: No, the Check 21 Act only requires that banks and other financial intstitutions accept IRDs in place of the original item. Whether or not you decide to utilize electronic processing is up to you.
When will Electronic Image Exchange (EIE) become a reality?: Not all areas of the country are good candidates for EIE, and may not be for many years to come. In fact, the Federal Reserve Bank estimates that by 2007, only 50% of the nation's banks will be participating in electronic exchange.
What will be required to send an Electronic Image?: First of all, an Image Quality Analysis (IQA) must insure that a good-quality image is sent. This must include the watermark for protection against fraud. Secondly, all images and data must be in the correct format specified by the exchange (several are possible). Finally, returns, adjustments, rescues, and re-deposits must all be tracked and managed properly.
What will be required to receive an Electronic Image?: The most important thing, of course, is the capability to receive Electronic Images. These images must then be converted from the format of the exchange into yours. IQA must insure that the images are good quality. You then must be able to recognize and accept "Certificated" images to help prevent fraud. Finally, you must be able to return, as well as request re-scans, re-deposits and adjustments.