Check 21

Q. What is Check 21?
A. Short for the “Check Clearing for the 21st Century Act,” Check 21 is a law that became effective on October 28, 2004. This law deals with how financial institutions collect checks and share drafts from one another. For example, when a check deposited at a financial institution in Ohio is drawn against another financial institution in California, the actual check must be transported to California in order to collect it. This takes time and money, plus weather conditions and other factors sometimes delay the transport of checks. Check 21 is meant to encourage financial institutions to begin exchanging checks with one another more efficiently. Financial institutions will be allowed to truncate the original check and send each other a “substitute check” instead.

Q. What is a “substitute check?”
A. Like any new technology, Check 21 won’t be adopted overnight and may take several years to gain widespread acceptance. In the meantime, most financial institutions will still need to receive paper items in order to process their customers’ transactions. Check 21 allows them to print and use “substitute checks,” which are paper replacements intended to be presented for payment between financial institutions. These substitute checks will be the legal equivalent of the original and will likely have limited impact on the typical credit union member.

Substitute checks are similar in size to original checks with a slightly reduced image of the front and back of the original check. The front of a substitute check states: “This is a legal copy of your check. You can use it the same way you would use the original check.” You may use a substitute check as proof of payment just like the original check.

Q. How will this affect my checking account?
A. Check 21 opens the door for financial institutions to eventually begin exchanging electronic images of checks instead of original checks or substitute checks. This change from exchanging checks to exchanging electronic images will not occur right away. It will be several years before all financial institutions move to this new electronic process. Once many of them have done so, your share drafts may clear your account more quickly than they do today. As always, balance and monitor your account regularly to prevent unwanted overdrafts.

Q. Will I still be able to get a copy of a cancelled check if I need one?
A. Yes. This will not change, but it will not be your original check, it will be a copy of the substitute check.

Q. What are my rights as a consumer?
A. Check 21 provides consumer protection provisions in case of a financial loss caused by a financial institution paying a substitute check instead of the original check. Consumers can make a claim to be recredited for their financial loss. Check 21 also requires that financial institutions notify consumers of their rights each time they receive a substitute check in their statements.

Q. How does Check 21 affect me with my credit union?
A. Check 21 provides protections to consumers, but not businesses, who receive substitute checks. These provisions affect credit unions in different ways depending on the way in which they process share drafts. For those credit unions that return share drafts to their members, Check 21 provides special expedited recredit protections to all the credit union’s members. For those credit union that do not return share drafts to their members, the special expedited recredit protections will only apply to a member who deposits the check of a third party, if that check bounces and is returned in the form of a substitute check to the member. It may also cover members who request a copy of their share draft and receive a substitute check.

Q. What does a recredit claim cover?
A. Check 21 gives the consumer a right to have funds of up to $2,500 recredited to the consumer’s account in 10 business days if the check is paid twice, paid for the wrong amount, or otherwise paid in error. The amount of your refund under this procedure is limited to the amount of your loss or the amount of the substitute check, whichever is less. You also are entitled to interest on the amount of your refund if your account is an interest-bearing account.

Q. How do I make a claim for a refund?
A. If you believe that you have suffered a loss relating to a substitute check that you received and that was posted to your account, your recredit claim must be made within 40 calendar days of either the date the credit union delivered the account statement showing the disputed charge or the date the substitute check was made available to the member, whichever is later.