FFIEC Check Clearing for the 21st Century Act
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  1. Overview of the Act and Final Regulation
    (10 minutes)
  2. Check Clearing Under Check 21 (3 minutes)
  3. Consumer Compliance Issues (10 minutes)
  4. Examination Issues
    (3 minutes)
  5. Summary (3 minutes)

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Frequently Asked Questions

Consumer Compliance FAQ for Check Clearing for the 21st Century Act (Check 21) and the Implementing Regulation (12 CFR 229)

General | Warranties and Indemnities | Expedited Recredit
Consumer Awareness | Other Issues


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 or unit 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 represents?

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 X9.100-140).

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 check?

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 21 Act?

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 check.

13. Must a person have received a substitute check to have a warranty claim?

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.

Expedited Recredit

15. What additional protections does the Check 21 Act provide to consumers?

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 substitute check?

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 calendar-day period?

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.

Consumer Awareness

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 consumer.

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 customers?

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 service

Other Issues

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 check?

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 check 21?

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 substitute check?

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.