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This legislation was drafted to help speed up the notoriously
slow check-clearing process and to reduce related costs. But what really
gave the bill the momentum it needed for enactment was the terrorist
attacks on September 11, 2001. The suspension of air traffic after
9/11 resulted in huge problems with the physical clearing of paper
checks, and helped overcome reluctance to change the system.
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The “Check 21” law was enacted on October 28, 2003 in
a bill signed by President George W. Bush. The effective date is October
28, 2004.
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The act creates a new negotiable instrument, “Substitute Checks”,
to make the U.S. Payments System more efficient. Paper checks can
be truncated (converted to an electronic image) at any point in the
check-clearing process and the resulting electronic image can be reconverted
into a substitute check that, if it conforms to the law’s standards,
is the legal equivalent of a paper check and must be accepted as such.
The law provides consumer protections similar to the Electronic Funds
Transfer Act, including prompt re-crediting of amounts in dispute.
The law also requires providing a notice to consumer account holders
explaining the process of substitute checks, how the process may be
different than the check-clearing process the consumer is familiar
with, and a description of the consumer’s re-credit rights when
the consumer believes in good faith that a substitute check was improperly
charged to the consumer’s account.
Financial institutions creating and handling substitute checks will
warrant that the substitute meets legal requirements and is not a
duplicate of another check that has been paid. These institutions
will be liable for any losses that result from the receipt of a substitute
check rather than an original check.
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In the current clearing process the check you wrote physically
travels from the recipient’s financial institution through
the payment system and is returned to your financial institution
to be debited to your account. Some banks still send the cancelled
check to you, while others send you optical images of the front
and back of the cancelled checks in with your monthly bank statement.
With the passage of “Check 21”, financial institutions
will be able to present images of the checks you have written from
recipient’s institution to your institution electronically.
This will reduce the amount of time your check is floating through
the payment system, but will allow the detection of fraud, identity
theft and other criminal activities that may adversely affect you
and your money more effectively, efficiently and timely. Should the
need arise financial institutions will be able to produce a “substitute
check” that will have the legal equivalent of a paper check.
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To make check processing faster, a federal law permits banks
to replace original checks with “substitute checks.” These
checks are similar in size to original checks with a slightly reduced
image of the front and back of the original check. The front of
the substitute check states: “This is a legal copy of your
check. You can use it the same way you would use the original check.” You
may use a substitute check as proof of payment just like the original
check.
Some or all of the checks that you receive with your account statement
or by request may be substitute checks. This notice describes rights
you have when you receive substitute checks from us. The rights in
this notice do not apply to original check or to electronic debits
to your account. However, you have rights under other law with respect
to those transactions.
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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.
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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 mail, e-mail, or 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–
- A description of why you have suffered
a loss (for example, you think the amount withdrawn was
incorrect);
- An estimate of the amount of your loss;
- An explanation of why
the substitute check you received is insufficient to confirm
that you suffered a loss; and
- A copy of the substitute
check or the following information to help us identify
the substitute check and investigate
your claim:
- The check number;
- The name of the person to whom you wrote
the check: and
- The amount of the check.
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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 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.
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.
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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. 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.
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