Check 21 Speeds Checking, Sinks Your Float

Check 21 will reduce check clearing time from days to hours. You cannot rely on float anymore.

If you think you can get away with a little float, think again. You know what float is-you write a check today hoping it won't be deducted from your account for a couple more days. That won't work anymore.
The Check Clearing for the 21st Century (Check 21) will cut the time it takes a check to clear from days to hours. So if you need to change your checking habits, do so before it's too late.

Check 21 was signed into law on Oct. 28, 2003, and becomes effective Oct. 28, 2004. It's designed to foster innovation and efficiency in the payments system by reducing some of the legal barriers to check truncation. Truncation means removing an original paper check from the check collection or return process, just as credit unions successfully have done for years. Supporters of the Act say it could reduce the cost of trucking and flying the paperwork cross-country by $2 billion a year.

The law eases the electronic exchange of checks by making electronic check processing voluntary and not mandatory. The law mandates that all institutions must accept a substitute check (the paper copy of an electronic check file), but doesn't mandate that all financial institutions be willing to accept electronic checks.

Meet the substitute check

The law smoothes check truncation by creating a new negotiable instrument called a substitute check that permits financial institutions to truncate original checks and to deliver substitute checks to financial institutions that want to continue receiving paper checks. A substitute check will be the legal equivalent of the original check.

What does this mean for consumers?

Say Jane writes a check (or share draft) to the grocery store. The store deposits the check in its bank. The store's bank gives the grocery store the money for it. Now the grocery store's bank has to collect the money from Jane's financial institution.

The grocery store's bank doesn't like paper, so it sends an electronic file to the Federal Reserve Bank (this is cheaper and faster).

The Federal Reserve Bank has now paid the grocery store's bank so the Fed needs to collect the money from Jane's financial institution. If her financial institution wants paper, the Fed sends it a substitute check, which is a paper copy of the original check.

The bottom line. These changes should be transparent to you most of the time.

Credit union members will not come into contact with substitute checks very often, but may find a substitute check:

o With their periodic statement,

o When viewing check images via online banking,

o If they request a copy of the paid check from the
credit union, or

o As a deposited check that is returned unpaid.

The main concern for consumers is the loss of float because of the speeded-up system.
Check 21 establishes the basic requirements for a substitute check. The substitute check must:

o Contain an image of the front and back of the original share draft/check,

o Bear a MICR (pronounced "miker," for magnetic ink character recognition) line with all the information from the original,

o Conform to the industry standards for substitute checks, and

o Be as suitable for automated processing as the original.

If the substitute check also meets the requirements below, it becomes the legal equivalent of the original paper check for all purposes under federal and state laws. The requirements for legal equivalence are that the substitute check:
o Include an accurate representation of the front and back of the original check and

o Bear a stamp that states, "This is a legal copy of your check. You can use it the same way you would use the original check."

Why change?

Check 21 is intended to:

o Allow financial institutions to decide voluntarily to send checks electronically to each other, and

o Allow any financial institution that doesn't want to receive an electronic check to request a paper copy of the electronic check file which is called a substitute check.

Your credit union will be guided by the regulations, which discloses when members handle substitute checks. Although most credit unions already truncate-and those that do will have limited contact with substitute checks-all credit union members use substitute checks in certain ways that trigger the new disclosures and liability rules.
The bottom line: These changes should be transparent to you most of the time. If your checking habits need improvement, brush up before the float sinks.

Check 21 mandates these disclosures.

What is a substitute check?

A substitute check is a copy of an original check that is the same as the original check for all purposes, including proving that you made a payment if it includes an accurate copy of the front and back of the original check and contains the words: "This is a legal copy of your check. You can use it the same way you would use the original check." A substitute check that meets these requirements is generally subject to federal and state laws that apply to an original check. If you lose money because you received a substitute check, you have the right to file a claim for an expedited refund.

Your right to file a claim for an expedited refund

Federal law gives you the right to file a claim for an expedited refund if you receive a substitute check and believe that all of the statements below are true:

1. The substitute check was incorrectly charged to your account (for example, this may be true if we charged your account for the wrong amount or if we charged your account more than once for the same check);

2. You lost money as a result of the substitute check charge to your account; and

3. You need the original check or a better copy of the original check to demonstrate that we incorrectly charged your account (for example, this may be true if you think that we charged your account for the wrong amount and the substitute check does not clearly show the amount).

Expedited refunds

To obtain an expedited refund, you must send us a claim. Federal law limits an expedited refund to the amount of your loss, up to the amount of the substitute check, plus interest if your account earns interest. You should be aware that you could be entitled to additional amounts under other state or federal law.

How to make a claim for an expedited refund

Please make your claim by calling, writing, one-mailing the credit union. You must make your claim within 40 calendar days of the later of these two dates:

1. The date that we delivered the account statement showing the charge that you are disputing, or

2. The date on which we made the substitute check available to you.

If there is a good reason (such as a long trip or a hospital stay) that you cannot make your claim by the required day, we will give you additional time.
Your expedited refund claim must:

1. Describe why you think the charge to your account was incorrect;

2. Estimate how much money you have lost because of the substitute check charge;

3. Explain why the substitute check is not sufficient to show whether or not the charge to your account was correct; and

4. Provide us with a copy of the substitute check or give us information that will help us to identify the substitute check and investigate your claim (for example, the check number, the name of the person to whom you wrote the check and the amount of the check).

Our responsibilities for handling your claim

We will investigate your claim promptly. If we conclude that we incorrectly charged your account, we will refund to your account the amount of your claim (up to the amount of the substitute check, plus interest if your account earns interest) within one business day of making that decision. If we conclude that we correctly charged your account, we will send you a notice that explains the reason for our decision and includes either the original check or a better copy of the original check than the one you already received. If we have not made a decision on your claim within 10 business days after you submitted it, we will refund the amount that we owe to your account, up to $2,500, plus interest, by that date. We will refund the remaining amount if any, plus interest, to your account by the 45th calendar day after you submitted your claim.
If we refund your account, on the next business day we will send you a notice that tells you the amount of your refund and the date on which you may withdraw that amount. Normally, you may withdraw your refund on the business day after we make it. In limited cases, we may delay your ability to withdraw up to the first $2,500 of the refund until the earlier of these two dates:

1. The day after we determine that your claim is valid; or

2. The 45th calendar day after the day that you submitted your claim.

Reversal of Refund

We may reverse any refund that we have given you if we later determine that the substitute check was correctly charged to your account. We also may reverse any interest we have paid you on that amount if your account earns interest. Within one business day after we reverse a refund, we will send you the original check or a better copy of the original check than the one you previously received, explain to you why the substitute check was correctly charged to your account and tell you the amount and date of the reversal.