Check 21 - FAQ's
for the 21st Century Act
Source: Federal Financial Institutions
1. How is “bank” defined with respect to the Check 21 Act?
The implementing regulation defines bank to mean an insured bank, a mutual
savings bank, a savings bank, an insured credit union, a savings association, an
agency or a branch of a foreign bank, and members of a Federal Home Loan Bank.
The term “bank” also includes any person engaged in the business of banking,
as well as a Federal Reserve Bank, a Federal Home Loan Bank, and a state
of general local government to the extent that the state or unit of general
local government acts as a paying bank. Unless otherwise specified, the term
“bank” includes all of a bank’s offices in the United
States, but not offices located outside the United States. A bank also
includes the Treasury of the United States and the United States Postal Service
to the extent that they act as a paying bank.
2. What is check truncation?
Check truncation refers to removing an original paper check from the check
collection or return. With Check 21, a substitute check or an electronic image
of the original paper check replaces the original check in the collection or
return process and is cleared through the check-clearing network.
3. What is a substitute check?
A substitute check is a paper reproduction of an original paper check that
must (1) contain an image of the front and back of the original check, (2) bear
a Magnetic Ink Character Recognition (MICR) line containing all the information
from the original check MICR line, except as provided in industry standards to
facilitate substitute check processing, (3) conform in paper stock, dimension,
and otherwise with industry standards, and (4) be suitable for automated
processing in the same manner as the original check.
4. When is a substitute check legally the same as the original check it
To be the legal equivalent of the original check, the substitute check must
meet each of the requirements described in the previous paragraph and, in
addition, must (1) accurately represent all the information from the original
check (i.e., must bear a legible image of the original check) and (2) bear the
legend “This is a legal copy of your check. You can use it the same way you
would use the original check.”
5. What is the industry standard?
The industry standard that governs substitute checks is American National
Standard Specifications for an Image Replacement Document – IRD, X9.100-140 (ANS
6. How do the Check 21 Act and the final rule define “accounts”?
For the purposes of subpart D (Check 21) “account” means all deposit
accounts as defined in Reg. D, 12 CFR 204.2(a)(1)(i). This includes transaction,
savings, MMDA and time deposits.
For the purposes of subparts A and B (General and Availability of Funds and
Disclosure of Funds Availability Policies) of Reg. CC “account” means any
transaction account except interbank accounts.
For the purposes of subpart C (Collection of Checks) “account” means any
transaction account, including interbank accounts.
7. How are consumer accounts defined for the purposes of Check 21?
The definition of “consumer account” in Reg. CC hasn’t changed, and it
applies throughout the regulation. It’s an account used primarily for
personal, family, or household purposes.
8. How is a check defined for purposes of Check 21?
Regulation CC defines “check” to mean a draft payable on demand and drawn
on or payable through or at an office of a bank, whether or not negotiable, that
is handled for forward collection or return, including corporate checks,
consumer checks, money orders, traveler’s checks, convenience checks and
government warrants. The term check in Regulation CC does not include drafts
drawn on branches of banks located outside the United States or drafts drawn in
a currency other than U.S. dollars.
9. Are all checks eligible for truncation and reconversion to a substitute
Yes. All checks are eligible for truncation and reconversion (by any bank
involved in the clearing process) to a substitute check including, but not
limited to, corporate checks, consumer checks, money orders, traveler’s
checks, convenience checks, and government warrants
10. What is the difference between an Image Replacement Document (IRD) and
a substitute check?
IRD is a technical term used by the banking industry in ANS X9.100-140 to
refer to substitute checks. The term IRD formerly included other documents used
to replace original checks, such as photocopies in lieu used when an original
check was lost or destroyed, but ANS X9.100-140 was changed so that the term now
only refers to substitute checks.
Warranties and Indemnities
11. What does it mean when a customer has a warranty claim under the Check
A customer may have a warranty claim (1) if the substitute check does not
meet the “legal equivalence” requirements (e.g., the image of the original
check that appears on the substitute check is illegible), or (2) if the
customer’s account was charged more than once for the same item. A customer
may make a warranty claim even if they did not receive a substitute check.
12. Are consumer customers the only ones that can have a warranty claim
under Check 21?
No. Warranty protections under the act apply to any customer (consumer,
business, or other) that receives a substitute check or any representation of a
substitute check. It is the expedited recrediting rights that only apply to
consumers and only in the event the consumer received the actual substitute
13. Must a person have received a substitute check to have a warranty
No. Paragraph 229.2(xx) of Regulation CC and the related commentary indicate
that the receipt of a paper or electronic representation of a substitute check
can give rise to a warranty claim (although it does not trigger either indemnity
or expedited recredit rights).
14. When does a customer have an indemnity claim under the Check21 Act?
A customer who incurred a loss due to the receipt of a substitute check
instead of the original check may have an indemnity claim. The indemnity claim
may or may not involve a warranty breach. For example, if the substitute check
satisfied the Check 21 Act warranties, a customer that nonetheless suffered a
loss because they received the substitute check instead of the original check
could have an indemnity claim. In contrast to the Check 21 Act warranties, which
apply regardless of what the customer received, a customer must have received an
actual substitute check to make an indemnity claim.
15. What additional protections does the Check 21 Act provide to
The Check 21 Act provides a special expedited recredit procedure that
consumers may use to resolve errors involving a substitute check under certain
circumstances. This procedure is available only to consumer customers, not to
corporate or business customers or to persons who hold an account for business
purposes. A consumer customer may make an expedited recredit claim if (1) the
consumer’s account was charged for a substitute check that was provided to the
consumer, (2) the consumer believes that the charge was improper or has a
warranty claim, (3) the consumer suffered a resulting loss, and (4) the consumer
needs the original check (or a copy of the original check better than the
substitute check already provided) to determine the validity of the claim. As
with the indemnity, a consumer must have received an actual substitute check to
make an expedited recredit claim.
Note that the bank is liable to its customer for improper check charges under
the Uniform Commercial Code regardless of whether the Check 21 expedited
recredit procedure applies.
16. Do expedited recredit rights apply to an image or a copy of a
No. Expedited recredit rights only apply to the substitute check itself, when
it is provided to a consumer and charged to the consumer’s account.
17. Can the customer’s claim period be extended beyond the 40
Yes. The financial institution shall extend the claim period by an additional
reasonable period of time if the consumer experiences extenuating circumstances.
The institution may voluntarily extend the claim period if it so desires.
18. Can the customer’s claim be made orally?
Yes. The financial institution may require the consumer to submit a written
claim such that the institution receives it by the 10th business day after the
banking day on which the bank received the oral notice. This situation may also
extend the 40 calendar-day claim period.
19. Some of the financial institution’s customers get their checks back
and some don’t (they get an imaged statement or just the statement). Do they
all have to get the initial consumer awareness disclosure?
No. Only the institution’s consumer customers who receive paid checks or
substitute checks along with their periodic account statements are required to
get the notice. Any new consumer customers, who will get paid original or paid
substitute checks back in their periodic statement, must get the notice at the
time the consumer relationship is established.
20. Does each person on the account have to get a notice?
No. An institution need not give a separate disclosure to each customer on a
jointly held account.
21. Some consumers have more than one account; do they have to get a
notice for each account?
No. The disclosure requirement is relationship-specific, rather than
account-specific, so the bank would only have to give each consumer customer
only one notice, regardless of how many accounts that person held for which paid
checks were returned.
22. Do consumers who request a substitute check or who get one as a
returned item have to get a copy of the Substitute Check Policy Disclosure, even
if they received one in the past?
Yes. Each time a consumer requests an original or a copy of a check and gets
a substitute check, the bank shall provide the disclosure at the time of
request, if feasible, and, if not, at the time the substitute check is provided
to the consumer. If the substitute check is provided as a returned item, the
disclosure must be given at the time the substitute check is provided to the
23. Does the Substitute Check Policy Disclosure have to be given when a
copy of a substitute check is provided to the consumer?
No. The disclosure must be provided only when a substitute check is provided
to the consumer.
24. What kind of Check 21 disclosure is required for the bank’s business
Notice to business customers is not required by regulation. However, banks
may wish to provide information to those customers as a matter of good customer
25. Does a financial institution have to revise its Funds Availability
Disclosures and send new ones out?
No. Check 21 does not require banks to revise their funds availability
schedules. However, if a bank chooses to change its availability schedule, as a
result of Check 21 or otherwise, the bank must notify its consumer customers in
accordance with paragraph 229.18(e) of Regulation CC.
26. Do financial institutions need to change their Deposit Agreements or
Contracts for new customers? What about for existing customers?
No. Check 21 does not require an institution to modify its Deposit Agreements
or Contract. However, an institution may want to consider amending its deposit
agreements to include the required consumer awareness notice and to address and
allocate risk with respect to the creation of substitute checks by corporate
customers. Under the act, when a person who is not a bank creates a substitute
check, the first bank that transfers or presents the substitute check (or the
first paper or electronic representation of that substitute check) is the
reconverting bank and, therefore, is the first bank to make the warranties and
indemnity under Check 21.
27. Can a financial institution (based on policy) treat customers and
non-customers differently when deciding whether they will cash a returned
substitute check at the teller window?
Check 21 and Regulation CC do not change the existing rules that apply or
otherwise address this issue. Many institutions have policies on cashing checks,
including returned items, for customers and non-customers.
28. Can the financial institution charge a fee for providing a substitute
Yes. With the agreement of the recipient, much like some institutions do
today, when providing original checks to their customers.
29. Can the financial institution charge a fee for providing a copy or
image of a substitute check?
Yes, much like some institutions do today, when providing copies of original
checks to their customers.
30. How are convenience checks or HELOC checks treated with respect to
Credit card and HELOC access checks are “checks” and, as such, could be
turned into substitute checks that, when handled by a bank, would be subject to
the Check 21 Act’s warranty and indemnity protections. However, the consumer
expedited recredit procedures apply only when a check is charged to a consumer
account, which includes only a deposit account. Subpart D of Regulation CC
clarifies that the only case in which the recredit right would apply to a credit
card/HELOC access check would be if a consumer deposited such a check into his
or her deposit account, the check were returned unpaid, and the consumer’s
bank provided the returned item to the consumer in the form of a substitute
check and charged the consumer’s account for the returned item. Note that in
this case, the consumer’s bank would also need to provide a consumer awareness
notice with the substitute check.
31. How are warrants treated with respect to Check 21?
Many states and other municipalities pay their obligations with warrants that
are drawn on the state or municipality, respectively. These documents are
considered non-negotiable instruments. Even so, these government warrants come
within the definition of “check” and may be reconverted into a substitute
check under the act. Since warrants vary from state to state, banks processing
such warrants may wish to consult with their legal counsel, as appropriate.
32. How does one know if an item is a substitute check or a copy of a
A substitute check must meet the industry standards of X9.100-140. Some of
these standards include type of paper stock, the use of MICR ink, and size
requirements. Staff training is a critical part of assuring that substitute
checks are identified and treated in an appropriate manner. Sometimes, a copy of
a substitute check will be printed on standard 8.5” by 11” paper without the
warranty language or added MICR line, and some may even have optical security
features indicating that the document is an original or a copy.
33. How long is the truncating bank required to keep the original check?
The act puts no destruction or retention requirements on the truncating bank.
Check retention and destruction and related requirements are governed under
existing check law, specifically UCC 4-406. In most states, a bank is not
required to give the original check to its customer (Massachusetts and New York
have an exception to this rule because those states require banks to give
customers an option to receive paid original checks with their account
statements). The Check 21 Act does not alter these existing rules.
In determining which original paper checks should be retained and for how
long, a bank truncating the original paper check should consider its business
risks, cost structures, and any agreements it may have with customers or other
banks concerning check retention in light of the existing legal requirements
relating to check retention and destruction.
34. Why is the bank called a reconverting bank and not a converting bank?
A reconverting bank is the bank that creates a substitute check; or if a
person other than a bank creates a substitute check, the first bank that
transfers or presents such a substitute check. This is a statutory term and
reflects the fact that the original check is converted to electronic form and
then later reconverted back to a paper substitute check.
35. How is check truncation different from check conversion?
“Check conversion” is a term that generally refers to converting a
“source document” (a check) into an Electronic Funds Transfer (EFT)
transaction for clearing through an electronic payment network, such as the
Automated Clearing House (ACH) or debit card networks. In the process, the check
is used only as a source of information and is not processed as a check payment.
The provisions of Check 21 do not apply to EFTs. Instead, the clearings of EFTs
are subject to Regulation E and the NACHA Rules. The types of check conversions
you may be familiar with include:
Accounts Receivable Check (ARC) conversion occurs when a consumer mails a
check (e.g., the consumer’s payment of his or her monthly phone bill) to a
company that, in turn, converts it to an electronic transaction and clears it
through the ACH
network. Generally, the consumer’s financial institution lists the item on
the consumer’s monthly statement as an electronic debit item and does not
provide an image of the item.
Point of Purchase (POP) conversion occurs when a check is submitted for an
over-the-counter transaction. The cashier swipes the check to capture account
information and [usually?] returns the voided check to the check writer, and
the transaction is cleared through the ACH or debit card network.