Consumers Check 21

What is Check 21?

Check 21 is the Check Clearing for the 21st Century Act, or Check 21 Act. This legislation authorizes financial institutions to truncate checks and exchange images instead of paper checks. Check 21 allows banks to create a special paper copy, called a substitute check or Image Replacement Document (IRD), of an original check.

What is a substitute check?

A substitute check - also referred to as an Image Replacement Document (IRD) - is a special paper copy of the front and back of an original check. The substitute check may be slightly larger than the original check. Substitute checks are specially formatted so that they can be processed as if they were original checks. The front of a substitute check should state: "This is a legal copy of your check. You can use it the same way you would use the original check."

Statements that include pictures or images of the original paper checks and/or substitute checks, photocopies of the original checks, and images of checks posted online are not recognized as legal equivalents of substitute checks / Image Replacement Documents (IRDs).

What is the difference between an Image Replacement Document (IRD) and a substitute check?

Image Replacement Document (IRD) is a technical term used by the banking industry to refer to substitute checks. The term IRD previously included other documents used to replace original checks, such as photocopies in lieu of a lost or destroyed original check, but the X9-financial industry standards as defined by the American National Standards Institute (ANSI) was changed and the term now only refers to substitute checks.

In simple words, a substitute check is a paper reproduction of the original check, also known as an Image Replacement Document (IRD). It contains an image of the front and back of the original check and bears the MICR line containing all of the information appearing on the original check. A substitute check or IRD bears the same legal standings as the original paper item.

How does Check 21 affect consumers?

With Check 21, your checks can be processed faster, which means money can be deducted from your checking account faster. By law, your bank cannot pay a check from your account unless you authorize that payment. In other words, you are protected from having your bank pay the same check from your account more than once or from having your bank pay the wrong amount for a check. Check 21 does not change these protections; however, Check 21 does give you special rights if you receive a substitute check from your bank.

You can read more about this in the consumer guide for Check 21 and substitute checks developed by the Federal Reserve Board at this link.

What should I do if I receive a substitute check and there is a problem?

Check 21 provides a special process that allows you to claim a refund (also known as an expedited re-credit) in the event you receive a substitute check from a bank and you believe there is an error; for example, you may believe that you have been charged twice for the same check.

You may use the special process to get a refund of the money you lost. The amount of your refund under the special process is limited to the amount of your loss or the amount of the substitute check that you received, whichever is less, plus interest on that amount if your account earns interest. If your loss is more than the amount of the substitute check, you may have the right under other laws to recover additional amounts of money.

If your bank finds that your claim is valid, you should receive your refund by the next business day after the bank's finding. Unless your bank finds that your claim is not valid, you should receive up to $2,500 of your refund (plus interest if your account earns interest) within 10 business days following receipt of your claim by your bank. You should receive the rest of your refund no later than 45 days after your bank receives your claim. If your bank finds that your claim is not valid, it will send you a notice explaining why.

Your bank may reverse the refund if it can show that the substitute check did not cause an error in your account.

What additional protections does the Check 21 Act provide to consumers?

The Check 21 Act provides a special expedited re-credit procedure that consumers may use to resolve errors involving a substitute check under certain circumstances. This procedure is available only to consumers, not to corporate or business customers or to persons who hold an account for business purposes. A consumer may make an expedited re-credit claim if the consumer believes that the charge was improper or has a warranty claim, if the consumer suffered a resulting loss, or needs the original check (or a better copy of the original check than the substitute check already provided) to determine the validity of the claim. As with the indemnity, a consumer must have received an actual substitute check to make an expedited re-credit claim.

Note that the bank is liable to its customers for improper check charges under the Uniform Commercial Code regardless of whether the Check 21 expedited re-credit procedure applies.

What if I use a check number from my physical checkbook?

As a matter of fact, check drafts do not require unique check numbers; however, check writers are free to use check numbers from their physical checkbook. This will help them to better track their expenses. Users are presumed to have endorsed their physical checks when entering the check details into our check-capturing application. In simple terms, users are supposed to mark the paper items on their checkbook. For physical endorsements, Payment21® uses "franking" to ensure compliance with laws as well as transaction security in the check truncation process. The franking-function places a mark on each original check item that runs through our proprietary Web-based imager. The mark indicates that the paper check draft has been turned into a digital item / electronic image which is available as an Image Replacement Document (IRD) substituting the original check.

What happens to my original check?

Typically, original checks are voided once the check is digitized. There are no requirements governing the retention of original checks. Substitute checks are legal substitutes for proof of payment.

Our online check truncation solution allows for checks to be printed and scanned at any given time in the process. Payment21® will destroy the paper item 90 days after truncation. Images are securely stored electronically in accordance with legal requirements.

How can I use Electronic Payment Orders (EPOs)?

As a consumer, you could make a payment through an electronic payment order, also known as demand draft, more specifically as remotely created payment order (RCPO), by auhorizing someone to withdraw money from your account without your signature; for example, you could authorize your credit card company over the phone to make an EPO for payment on your credit card account before the monthly deadline. The Uniform Commercial Code applies to EPOs. While EPOs can be useful, you must trust the person or company you allow to create an EPO because it does not include your signature. With Check 21 EPO, Payment21® provides accredited check draft services ensuring the highest level of security and consumer protection possible today.

What do I need to know about authorizing electronic payment orders?

Authorization may be given in writing or by telephone. It is subject to compliance with applicable state law, if any. (UCC § 1-103): “If a person acting… as a representative signs an instrument… the represented person is bound by the signature to the same extent the represented person would be bound if the signature were on a simple contract.” The signature can be via use of a word, mark, or symbol. Again, it is subject to compliance with applicable state law (UCC §§ 3-401 - 3-402), NSF or UCF Fees can be collected by notice at point of checkout or by other means evidencing an authorization.

The FTC’s Telemarketing Sales Rule (68 Fed. Reg. 4669, January 23, 2003) requires that an authorization be written or oral. The written authorization must be signed by the customer. The signature may be in electronic or digital form. The oral authorization must be tape-recorded.

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