Check 21 Legislation

About Check 21 Legislation
Check 21 (The Check Clearing for the 21st Century Act) is a new federal law which will go into effect October 28, 2004. It is a means of streamlining the nation’s check processing system. Check 21 is intended to reduce the time and cost associated with the physical transportation of paper checks between banks. It will also reduce the vulnerability of the check payment system from disruptions due to extreme weather or natural disasters. Andrew Johnson Bank has prepared the following questions and answers to inform our customers about this new law. If you have any further questions, please contact a banking representative at 423-783-1000.

What is Check 21?
Check 21 allows all banks to replace the original check with a paper reproduction (front and back). This reproduction, called a substitute check, is created from a digital image of the original, contains the same information, and becomes the legal equivalent of the original check.

Why create substitute checks? They’re paper too, aren’t they?
Yes, substitute checks are paper as well. However, they generally don’t have to be transported between banks as is the case with the current check processing system. The current check processing system can be disrupted since it is reliant on transportation and weather conditions. Substitute checks, on the other hand, are created from digital images of the original checks. Banks can exchange these digital images electronically, reducing reliance on physical transportation. The digital images can be converted to substitute checks if a substitute check is needed for any reason.

How does Check 21 change the way I write or accept checks?
It doesn’t. You will continue to use your current paper checks and accept paper checks from others.

What happens if there is a discrepancy and I need to show a copy of a check?
In the event of a discrepancy, retailers and service providers, including financial institutions, are required to accept the substitute check as proof of payment. The substitute check is the legal equivalent of the original.

If I normally receive returned checks with my statement, what will I now get back with my statement under Check 21?
The government has not mandated that all banks convert paper checks into digital images. Therefore, not all checks you write will be converted into substitute checks. The conversion is expected to be a gradual process. If you currently receive your paid checks with your account statement, after October 28, you may begin to notice a combination of original and substitute checks.

What happens if I have check safekeeping?
If you have check safekeeping, digital images of your cancelled checks will be stored at Andrew Johnson Bank in place of the original checks. Substitute checks can then be created from these digital images as required.

What happens to my original checks?
Once a digital image is created, your original check is “truncated,” or taken out of the check collection process. The digital image can then be used to create a substitute check. The truncated checks are destroyed.

Are any checks exempt from Check 21 legislation?
All checks are eligible for conversion to a substitute check.

Is it possible for me to “opt out” of Check 21?
No, once Check 21 legislation goes into effect in October 2004, it will apply to all bank customers, as well as retailers and service providers, with no exceptions.

What if I’m just not comfortable with this whole new check processing system? What are my options?
We understand that, for those customers who simply want their original checks returned with their statements, the new process will take some adjustment. Andrew Johnson Bank can assure you, however, that we have been investing in imaging technology for a number of years to prepare for industry conversion to electronic processing.

How might Check 21 reduce the risk of fraud?
Relying on check images, instead of paper, makes it less likely that an identity thief will be able to access the personal financial information imprinted on your checks. The original check is physically taken out of circulation, and the enhanced security of electronic channels better limits contact with your financial information. Also, electronic processing between financial institutions reduces the time between the check being written and cancelled, so customers should be able to detect forged, altered or unauthorized items sooner.

If Check 21 accelerates the processing time, how does it affect the amount of time between the writing and cashing of a check?
Check 21 will result in a reduction in the “float time,” the time between the cashing and clearing of a check. Customers who sometimes rely on “float” time to maintain balances will need to be careful to avoid being overdrawn. One way to better control the risk of overdraft is to view your daily activity through our online banking service.