What is Check 21 and why was it enacted?

Check 21 stands for a law that was passed on October 28, 2003.  Its name is: Check Clearing for the 21st Century. The law facilitates the broader use of electronic check processing by banks. The Act enables this by authorizing the creation of a substitute check from an electronic record or image. The Act is being put into place to allow banks to choose the option to transport checks electronically, rather than physically, which can be burdensome, slow and costly.

When did Check 21 go into effect?

The Check 21 Act was effective October 28, 2004.  At this time banks may elect to begin sending or receiving check images in lieu of the original check. All banks will be required to accept substitute checks at that time. You may currently receive substitute checks, or may notice images of substitute checks on your account statement.

What is a "substitute check"?

A substitute check is a new negotiable instrument that is a paper reproduction derived from a digital image of your original check.  The substitute check contains an image of the front and back of the original check, and contains all original payee and bank endorsements and audit trails. A properly prepared substitute check is the legal equivalent of the original check for all purposes.

Will the substitute check look like my original check?

It will have the same appearance as the check you originally wrote, but it will have additional information on it that banks will use in their check clearing process. It will also bear the language: ?This is a legal copy of your check. You can use it the same way you would use the original check?. 

Will all of my checks become substitute checks? 

Not necessarily. Check 21 does not mandate electronic check processing by all banks.  It only makes it possible. The effects of Check 21 will most likely be phased in over the next year or two.

What happens to my original check?

If a financial institution digitizes your original check, that financial institution is responsible for the retention and eventual destruction of your original check. There are no uniform requirements governing the retention of the original checks. Typically, original checks will be destroyed once the original has been digitized.  As mandated by the Act, substitute checks are legal substitutes for proof of payment.

(Now all we need do is to get all the loan underwriters on board!)