Check 21What is Check 21?
The Check Clearing for the 21st Century Act (Check 21 Act) changes the way that checks are processed in the United States. Effective October 28, 2004, the Check 21 Act creates a substitute check (IRD) that is the legal equivalent of the original paper check. As long as it meets the requirements outlined in the act, this substitute check can be deposited, presented, sent for collection, or returned without the agreement of the recipient.
Check 21 does not authorize check imaging or electronic checks. However, if banks want to create these substitute checks, they will have to have access to some level of image technology.
Why was Check 21 created?
The goal of this act is to help improve the overall efficiency of our nation’s payment system. Check 21 was designed to reduce the time, risks, and costs associated with paper check processing. It also hopes to avoid uncontrollable delays caused by weather and disruptions in the national transportation system.
What is a substitute check?
A substitute check is a paper reproduction of original checks that must:
- contain an image of the front and back of the original check
- bear a MICR number line containing all the information appearing on the MICR line of the original check
- conform, in paper stock, dimension, and otherwise, with generally applicable industry standards for substitute checks
- be suitable for automated processing in the same manner as the original check
- show the routing number of the truncating bank and the number of the bank creating the check.
How do I know if my checks are Check21 Compliant?
The main standard that is referred to in the Check 21 Legislation is ANSI X9.7 voluntary standard for Image Readiness. The check must go through a specialized image tester that can measure values at print contrast, file size, paxel counts, and reflectance levels in specific areas of interest. Correctly designed checks will allow clear imaging of all areas of interest without interference of background printing.
What are the risks of non-compliance?
The act doesn’t outline specific penalties for fines for non-compliance, but clearing houses, large banks and vendors of image technology will pressure businesses and customers to become compliant.
What are banks doing to enforce Check21?
Image Ready ANSI X9.7 standards are voluntary, so only 5% of all banks in the United States are expected to adopt this standard in 2004. Most banks are not enforcing Check21/Image Ready standards yet, but some larger institutions may begin to suggest to their customers that they redesign their checks to image ready standards at this time.
Warranties and Indemnities under Check21
Under Check21, a bank that transfers, presents or returns a substitute check would:
- Warrant that the substitute check meets legal equivalence requirements
- Warrant the payment will not be requested based on a check that has already been presented (no double debit)
- Indemnify substitute check recipients for a loss that is due to the receipt of a substitute check instead of the original check
If my company chooses to comply with these standards, what changes need to be made?
- The check background must drop out when scanned
- No solid boxes or reverses in the AOI
- Use plain text in place of the reversed out boxes
- 5/8” Clear Band in the MICR area
Fact or Fiction
Check21 compliance is mandatory.
Fiction: Check21 does not mandate electronic processing of digital check images, but rather allows for it to happen.
Check21 will reduce the need for checks.
Fiction: Check21 will not affect the need for an original check to be presented. It legislates what can happen to that check once it is presented for payment.
Certain ink colors are not Check21 compliant.
Fiction: As long as the check background drops out when imaged and complies with the ANSI voluntary standards for image readiness, it doesn’t matter what color ink is printed on the check.
My checks will no longer be able to use a security void photograph.
Fiction: Void backgrounds on checks are very important to deter against fraudulent copying and scanning. Current hidden word and void technology that doesn’t interfere with the AOI’s on a check is available.