What is Check 21?
Check 21 is the popular name for a new federal law called the Check Clearing for the 21st Century Act. This new law will standardize and streamline the check clearing process nationally. Effective October 28, 2004, Check 21 allows banks and businesses to convert a check into a special electronic image called a "substitute check" that can be transmitted across data lines from point to point through the banking process without requiring further handling of the paper check.
The substitute check will have all of the information contained on the original check, both front and back, and will have the legend "This is a legal copy of your check. You can use it the same way you would use the original check."
Once the electronic image is created, the original check is "truncated," or taken out of circulation. This will be done by the bank or business which first converts it into an image. The actual check is then either stored or destroyed. The substitute check then becomes the legal instrument in place of the original paper check.
How will this affect my checks?
You can continue to write checks in the same way as you always have before. In the event that you deposit a check to your account which is dishonored for any reason, such as being drawn on an account which is overdrawn or has insufficient funds, the check which you deposited will be returned to you in the form of a substitute check, not the original check. Check 21 provides that substitute checks are enforceable just like original checks.
What will my statement look like?
There will be no change to the statement itself. BancorpSouth has used image statements for several years, and you will continue to see images on your statement. However, you may notice that some of the images in your monthly statement look different. Presently,your monthly statement contains images of the checks which clear your account. As substitute checks begin to clear your account under Check 21, your statement will include images of substitute checks. Although the appearance of imaged substitute checks will be different, these images will still have all of the information you are used to seeing on the images of checks which are presently in your statement.
Why have substitute checks?
Presently, checks move between banks by being physically transported all across the nation. Check 21 will permit billions of checks written each month to be electronically and almost instantaneously exchanged between banks. Just as airlines experience delays in bad weather and sometimes lose luggage, the present system of physically transporting checks between banks also encounters delays and occasional lost items. The use of substitute checks will result in a much more efficient and reliable check clearing process.
Because the substitute check is transmitted electronically, risks are greatly reduced due to not having to physically transport checks between banks, and processing time and cost are reduced significantly. Should a physical copy of a check ever be needed, the electronic image will allow a paper reproduction to be printed.
Does Check 21 reduce identity theft and fraudulent checks?
The fewer physical checks in the system, the less chance for someone to steal your identity. The faster the original check is removed from the system, the better, because the electronic images are transmitted over secure systems that limit human contact. Also, the faster processing time should help you more readily identify that forged or altered checks are being presented for payment against your account, increasing the probability of catching the person perpetrating the fraud.
What about float time?
Checks will clear faster. That means you should have the funds in your account to cover your check at the time you write it. No longer can you count on the time in mail and time in processing to let you "cover it later."
Is it possible for both my original check and substitute check to be processed?
While it is possible, it is very unlikely to happen. In order to process a substitute check, banks are required by Check 21 to warrant that the original check will not be processed. In the unlikely event it does happen, you can submit a claim for reimbursement.
Is the system accurate? What if the substitute check is not correct?
If you think a substitute check shown on your statement is not a complete representation of your original check, contact the bank immediately. We will ask you to submit your claim in writing and will promptly investigate the matter.
What if the substitute check is refused as proof of payment?
Check 21 requires that a paid substitute check be accepted as proof of payment - it is the equivalent of the original check. Likewise, images of substitute checks will be sufficient proof to the same extent that images of original checks are sufficient.
Are a substitute check and an ACH transaction the same thing?
No. An ACH transaction is a funds transfer authorized through the automated clearinghouse. In this case a business or other person authorized by you collects account information from a voided check and from that information originates an electronic debit to your account. Examples of these transactions are direct draft insurance and utility payments. A substitute check, on the other hand, is a replacement for an original check which you have written and is created from the original check. It will appear on your statement as a check and there will be an image of it, while an ACH transaction will be shown on your statement similar to a debit card transaction and there will not be an image of it.