Banks Check 21

How can banks accept remote deposits with Check 21?

Banks can image a check either through the teller equipment in the branch or at an ATM. That image can be transmitted to a bank's central processing unit, where a substitute check will be created and then sent for collection. This will speed up the collection and therefore return of those items.

How does return processing for banks work with Check 21 in terms of printing the physical check?

With Check 21, paying banks can create substitute checks from images of checks and avoid the sorting required to find the items to be returned. In some truncation environments, the depositary bank holds the physical item and the image of the item. If electronic information is sent to the depositary bank, it can create a substitute check rather than locating the physical item - again avoiding sorting many physical items.

How can I use IRD Reprint?

Check 21 IRD Reprint allows a financial institution to print an Image Replacement Document (IRD) which is a legal copy of the original document. This document is returned to the original depositor once final NSF status has been reached.

What are the changes in truncation process with Check 21?

Prior to Check 21, for banks to truncate checks, all parties had to agree to the truncation. Many bank customers still require their paid physical checks to be returned to them. In order to truncate checks, sending banks had to know which items could be truncated and which could not. While the banking industry did devise a number of methodologies to make this determination, most of them came at significant cost or operational burden - or both. With Check 21, banks still need to agree to truncate checks, but all checks can be truncated without agreement. For customers requiring a physical check, the paying bank can create a substitute check. The banking industry has estimated significant savings from the truncation of checks and exchange of images. These savings will be better realized if all checks can be truncated. Even taking into account the expense involved in printing substitute checks for customers requiring the return of a physical check, the additional savings associated with truncation would be more than offset.

Who provides the warranty for a substitute check?

The financial institution or processor must provide a warranty for the substitute check. This warranty must be provided by the financial institution when it removes or "truncates" the original paper check from the forward collection or return process and converts the electronic image into a substitute check.

A full view of the legal requirements for a substitute check can be found at this link.

How is a “check” defined for the purposes of Check 21?

Regulation CC defines “check” to mean a draft payable on demand and drawn on or payable through or at an office of a bank, whether or not negotiable, that is handled for forward collection or return, including corporate checks, consumer checks, money orders, travelers' checks, convenience checks and government warrants. The term "check" in Regulation CC does not include drafts drawn on branches of banks located outside the United States or drafts drawn in a currency other than U.S. dollars.

How long is the truncating bank required to keep the original check?

The Check 21 Act puts no destruction or retention requirements on the truncating bank. Check retention and destruction and related requirements are governed under existing check law, specifically UCC 4-406. In most states, a bank is not required to give the original check to its customer (Massachusetts and New York have an exception to this rule with the states requiring banks to offer customers the option of receiving paid original checks with their account statements). The Check 21 Act does not alter these existing rules.

In determining which original paper checks should be retained and for how long, a bank truncating the original paper check should consider its business risks, cost structures, and any agreements it may have with customers or other banks concerning check retention in light of the existing legal requirements relating to check retention and destruction.

What does it mean when a customer has a warranty claim under the Check 21 Act?

A customer may have a warranty claim if the substitute check does not meet the “legal equivalence” requirements (e.g., the image of the original check that appears on the substitute check is illegible), or if the customer’s account was charged more than once for the same item. A customer may make a warranty claim even if they did not receive a substitute check.

Are consumers the only ones that can have a warranty claim under Check 21?

No. Warranty protections under the act apply to any customer (consumer, business, or other) that receives a substitute check or any representation of a substitute check. It is the expedited re-crediting rights that only apply to consumers and only in the event the consumer received the actual substitute check.

Must a person have received a substitute check to have a warranty claim?

No. Paragraph 229.2(xx) of Regulation CC and the related commentary indicate that the receipt of a paper or electronic representation of a substitute check can give rise to a warranty claim (although it does not trigger either indemnity or expedited re-credit rights).

When does a customer have an indemnity claim under the Check 21 Act?

A customer who has incurred a loss due to the receipt of a substitute check instead of the original check may have an indemnity claim. The indemnity claim may or may not involve a warranty breach: for example, if the substitute check satisfied the Check 21 Act warranties, a customer who nonetheless suffered a loss because they received the substitute check instead of the original check could have an indemnity claim. In contrast to the Check 21 Act warranties, which apply regardless of what the customer received, a customer must have received an actual substitute check to make an indemnity claim.

Can the customer’s claim period be extended beyond the regular period?

Yes. The financial institution can extend the claim period by an additional reasonable period of time if the consumer experiences extenuating circumstances. The institution may voluntarily extend the claim period if it so desires.

Can the customer’s claim be made orally?

Yes. The financial institution may require the consumer to submit a written claim by the 10th business day after the banking day on which the bank received the oral notice. This situation may also extend the claim period.

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