Check 21 Regulation FAQ

A new federal law came into effect on October 28, 2004 called The Check Clearing Act for the 21st Century, or Check 21. This new law will help make check processing faster and more efficient by removing the need to transport paper checks between financial institutions.

Check clearing is an outdated and manually intensive process that relies on ground and air transportation to move paper checks between financial institutions before they can be paid. To expedite the clearing process, Check 21 introduces a new negotiable instrument called a Substitute Check that is a paper reproduction of an original check and must be accepted by every U.S. credit union and bank.

New Century Federal Credit Union is fully prepared for the implementation of Check 21 and as part of our commitment to our members, we have created this document to answer your questions and help you understand how Check 21 will affect you.


Why do we need Check 21?

Since 2000, the Federal Reserve and the financial industry have been exploring ways to make the check clearing process more efficient by using electronic images of checks. There are already agreements between financial institutions to accept electronic images for processing, but the law requires that they be followed up by original paper checks. When air transportation was grounded following the events of September 11, check processing was severely interrupted and it was recognized that an alternative method for processing checks was needed. The result is Check 21, which was signed into law by President Bush.


How does Check 21 make the check clearing process more efficient?

Check 21 allows financial institutions to truncate checks at any time during the check clearing process. Truncation removes the original check from the clearing process and an electronic image of the check can then be sent between financial institutions for clearing. Because the original check does not need to be physically transported through each stage of the clearing process, checks can clear more quickly and transportation expenses can be reduced.


If checks clear more quickly, will check "float" be reduced?

Yes. Because paper checks will no longer need to be transported between financial institutions, checks will clear much more quickly. In fact, with the introduction of Check 21, checks may clear in as little as one day. Until now, it was usually safe to write a check a day or two before a deposit was made to your account. With the introduction of Check 21, a good practice would be to make sure that a check is covered before it is written. You can see up-to-date account balances through ehccu – online banking.


Are Credit Unions required to accept electronic images of checks instead of originals?

No, Check 21 does not mandate that electronic images of checks be accepted by all financial institutions. Acceptance of electronic images is by private agreement. Instead, Check 21 introduces a new negotiable instrument called a "Substitute Check" which must be accepted by all financial institutions and individuals as though it were the original check.


What is a Substitute Check?

A Substitute Check is a paper reproduction of an original check. It contains images of the front and back of the original and includes all endorsements. It is slightly larger than an original check because it contains information about who truncated it and who reconverted it into a substitute check. All Substitute Checks must be accepted as though they were original checks and must contain the language: "This is a legal copy of your check. You can use it in the same way you would use the original check." Substitute Checks have been created to allow institutions that do not wish to process digital images of checks to process Substitute Checks as though they were originals. Substitute Checks can also be used in the event of disputes or returns and can be sent to customers that receive their checks with their statements. New Century does not return checks with statements so this will not affect New Century members.


What will happen to my checks?

Check 21 does not require financial institutions to retain original checks. The financial institution that truncates your checks (converts them into electronic images) will develop their own policies for retention or destruction of the originals.


Will Check 21 affect the way I write or accept checks?

No, you can continue to write, accept, and deposit checks as you have always done although you should notice checks clearing much more quickly.


What benefits can I expect as a result of Check 21?

Check 21 will benefit New Century members in a number of ways:

  • Checks will clear faster.
  • Security will increase and check fraud will decrease.

What should I know to prepare for Check 21?

  • Presently, checks can take up to ten days to clear. With the introduction of Check 21, you can expect checks to clear much more quickly. In some cases, checks may clear in as little as one day; almost completely eliminating the float time that we have become accustomed to. To avoid becoming overdrawn, it may be a good idea to check your daily balances by calling any of our branch locations and finding out your balance. You can also use the Touch Tone Teller to find out your balance and to transfer funds between your accounts.
  • If you deposit a check and it is returned, you may receive a Substitute Check in its place. As we have mentioned previously, Substitute Checks are the legal equivalent of original checks and can be re-presented in the same way as original checks.
  • When viewing images of checks online or requesting a copy of a check you have written, you will begin to see Substitute Checks and images of Substitute Checks. The difference between the Substitute Check and the original is the extra information that allows financial institutions to determine which institution removed the original check from the clearing process and which institution reconverted it to a Substitute Check.


What are my rights regarding Substitute Checks?

In certain cases, federal law provides a special procedure that allows you to request a refund for losses you suffer if a substitute check is posted to your account (for example, if you think that we withdrew the wrong amount from your account or that we withdrew money from your account more than once for the same check). The losses you may attempt to recover under this procedure may include the amount that was withdrawn from your account and fees that were charged as a result of the withdrawal (for example, bounced check fees).

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. If your loss exceeds the amount of the substitute check, you may be able to recover additional amounts under other law. If you use this procedure, you may receive up to $2,500 of your refund (plus interest if your account earns interest) within 10 business days after we received your claim and the remainder of your refund (plus interest if your account earns interest) not later than 45 calendar days after we received your claim.

We may reverse the refund (including any interest on the refund) if we later are able to demonstrate that the substitute check was correctly posted to your account.


How do I make a claim for a refund?

If you believe that you have suffered a loss relating to a substitute check that you received and that was posted to your account, please contact us by telephone. You must contact us within 40 calendar days of the date that we mailed (or otherwise delivered by a means to which you agreed) the substitute check in question or the account statement showing that the substitute check was posted to your account, whichever is later. We will extend this time period if you were not able to make a timely claim because of extraordinary circumstances. Your claim must include:

  1. A description of why you have suffered a loss (for example, you think the amount withdrawn was incorrect);

  2. An estimate of the amount of your loss

  3. An explanation of why the substitute check you received is insufficient to confirm that you suffered a loss; and

  4. A copy of the substitute check [and/or] the following information to help us identify the substitute check: the check number, the name of the person to whom you wrote the check, the amount of the check.


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