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A new way of processing checks will take effect beginning October 28, 2004. The Check Clearing for the 21st Century Act (Check 21) is a new federal law that will impact all financial institutions, not just Wachovia.
The goal of Check 21 is to reduce paper, combat fraud and streamline how checks are processed. The current way of processing checks involves presenting paper checks, which can be time-consuming and expensive. With Check 21, a bank can replace an original check with a substitute check that has the same legal standing as the paper check. This will enable banks to move checks electronically.
The following information will explain more about Check 21 and how it may impact you. This site will be updated periodically with new information as it becomes available.
1. What is Check 21?
2. What is the purpose of the Check 21 Act?
3. How was the Act developed and by whom?
4. What exactly is a substitute check?
5. Does Check 21 require all checks to be converted to an image?
6. What do US banks need to do to prepare for Check 21?
7. How are checks processed now?
8. Does Check 21 preempt state law?
9. Can institutions or their customers opt out of Check 21?
10. Can government organizations opt out of Check 21?
11. Are any USD checks not eligible for conversion to a substitute check?
12. Does this mean our institution will not be getting back our canceled checks?
13. What will happen to the original check?
14. What if there is an error involving a substitute check?
15. How will Wachovia prevent both the original and substitute checks from posting against our account?
16. Will this change the way our institution sends Cash letter deposits to Wachovia?
17. Will deposited checks that are returned be impacted?
18. Can we still redeposit checks that are returned to us by Wachovia if they are substitute checks?
19. Will Check 21 impact Checks on Us and/or Controlled Disbursement products?
20. Will Check 21 impact Stop Payments/Returns?
21. Will checks that we write clear faster?
22. What if our bank is interested in capturing and transmitting images directly to Wachovia?
The Check Clearing for the 21st Century Act, better known as Check 21, is a new federal law that goes into effect on October 28, 2004. Check 21 establishes what’s known as a “substitute check.” A substitute check has the same legal standing as the original check and can be processed just like the original check.
2. What is the purpose of the Check 21 Act?
The purposes of Check 21 are:
3. How was the Act developed and by whom?
The Check Clearing for the 21st Century Act was created with the help of banks, consumer advocacy groups and technology companies to streamline the banking system. The Federal Reserve Bank proposed it to the Congress and Senate and it was unanimously passed in October 2003.
4. What exactly is a substitute check?
A substitute check is a paper reproduction that has been created from an electronic image of the original check and can be processed the same way as the original check. It shows the front and back and includes all of the account information from the original check and contains the statement: “This is a legal copy of your check. You can use it the same way you would use the original check.”
5. Does Check 21 require all checks to be converted to an image?
No, the Check 21 Act encourages banks to use image technology to streamline check processing. And the Act establishes the substitute check, created from an image, to be the legal replacement of the original check that must be accepted for all purposes.
6. What do US banks need to do to prepare for Check 21?
To comply with Check 21, financial institutions must be prepared to accept and process substitute checks by the effective date (October 28, 2004) and to make consumers aware of the Act and what their rights are within the Act.
Banks have the option of creating substitute checks; Check 21 strongly encourages financial institutions to use check imaging – but it is not required.
7. How are checks processed now?
Traditional check clearing involves the physical movement of paper checks from the location where the check was deposited, to the bank where the funds will be drawn. If there are insufficient funds in the account, the check is sent back to the original bank of first deposit. In total, this process can take several days.
One of the goals of Check 21 is to reduce the time it takes for checks to clear, relying more on automation and less on manual check processing.
8. Does Check 21 preempt state law?
Check 21 supersedes any federal or state law, including provisions of the Uniform Commercial Code; to the extent such laws are inconsistent with this Act. Laws that apply to checks that are not inconsistent with Check 21 will still apply.
9. Can institutions or their customers opt out of Check 21?
No. Under the Act, no institution or any of its customers may “opt out” of the Act; all checks are eligible to be converted to substitute checks and all parties that receive checks must accept the substitute check in lieu of the original paper check. If bank customers receive checks back with their statement, they may get substitute checks instead of original checks.
Check 21 affects all customers of banks, savings & loans and credit unions. This includes consumer customers, corporate customers and governmental agencies.
10. Can government organizations opt out of Check 21?
No. All checks are eligible to be converted to substitute checks and are subject to the Act, including government checks.
11. Are any USD checks not eligible for conversion to a substitute check?
No. All USD checks are eligible for conversion to a substitute check. This includes, for example, but is not limited to consumer checks, commercial checks, money orders, traveler's checks, treasury checks, etc.
12. Does this mean our institution will not be getting back our canceled checks?
After October 28, 2004, customers who get their checks back in their monthly checking account statement may start to receive substitute checks in place of some originals. Those customers who receive check image statements or view their checks online may also notice that some of their checks have been changed into substitute checks.
13. What will happen to the original check?
The Act puts no check destruction requirements on banks that choose to use substitute checks, check truncation and imaging. Generally, banks destroy the check shortly after making an electronic copy, unless there are reasons why the original is kept longer. In such cases, checks would be properly safeguarded and protected. Electronic check images are generally kept for seven years.
14. What if there is an error involving a substitute check?
In addition to the same protections that apply to original checks, the Act provides extra protections for substitute checks. The Act requires that the bank provides two warranties; first, that the associated transaction will not double post, and second, that the substitute check created meets the legal requirements for substitute checks as defined within the Act.
15. How will Wachovia prevent both the original and substitute checks from posting against our account?
Double posting is a risk that exists in today’s traditional check processing environment as well as in the electronic payments arena. Wachovia has a long history of minimizing such occurrences through the diligent application of quality controls. We will continue to apply similar controls to help prevent posting both original and substitute checks.
16. Will this change the way our institution sends Cash letter deposits to Wachovia?
No. You can continue to deposit original paper check items to Wachovia as you do today. However, Wachovia may choose to capture images of your deposited items overseas and transmit these images to our processing facilities in the United States in order to eliminate courier delays and accelerate the posting of your deposit. Wachovia will sort the images and transmit them electronically to those US banks who have an image exchange agreement with us, or produce substitute checks for those US banks that still require paper.
17. Will deposited checks that are returned be impacted?
Substitute checks are expected to play a significant role in the returns process after Check 21 becomes law. As a result, a significant portion of your deposit returns may be presented as substitute checks. These substitute checks have the same legal equivalence in the United States as the original check and should be treated the same as an original check. A returned substitute check is a negotiable instrument and can be represented.
18. Can we still redeposit checks that are returned to us by Wachovia if they are substitute checks?
Yes, you can treat Substitute Checks exactly as you do original checks, provided they were created/endorsed within the banking system. If you intend to use software or employ a vendor to create Substitute Checks for deposit or redeposit at Wachovia, prior express written consent is required.
19. Will Check 21 impact Checks on Us and/or Controlled Disbursement products?
Wachovia will process your checks and stop payments the same way we do today. However, as Check 21 gives legal equivalence to a substitute check, there may be times when we are presented with a substitute check against your account. When this happens, you will receive the cancelled substitute check rather than the original in your monthly statement.
20. Will Check 21 impact Stop Payments/Returns?
Wachovia may begin using substitute checks in the returns process. Use of substitute checks in this manner should not impact your account. You should continue to issue stop payments as you do today. However, you may receive inquiries from your payees who are not familiar with Check 21 if a stopped check is returned to them as a substitute check.
21. Will checks that we write clear faster?
The checks you issue may clear more quickly. Particularly for cross-country points, substitute checks may be used to speed up the collection process by eliminating physical transportation of the original check.
22. What if our bank is interested in capturing and transmitting images directly to Wachovia?
If your bank is interested in learning more about the requirements for capturing images of USD check transactions at your own facility for transmission direct to Wachovia, we can introduce you to approved hardware and software vendors who are committed to providing secure processing and quality control. Direct image capture would allow you to retain the original items for safe-keeping at your bank and may facilitate return item processing in countries where substitute checks are not accepted as legal equivalents.
Note: In addition to the software and hardware investments required for each capture site, direct image capture requires an image exchange agreement accepting responsibility for the indemnities and warranties required by Check 21.
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capmark@wachovia.com