Check 21 Disclosure

On October 28, 2004, a new law - known as Check 21- went 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. Below are answers to frequently asked questions with regard to "Check 21".

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.

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.

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.

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.

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.

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.

Will my paid original checks be returned with my paper statement?
No. With BofI's image services, you can view your statement and images of paid checks via the Web.

Does Check 21 apply to all types of customer accounts?
Yes. Check 21 applies to all types of accounts with check access.

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.

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.