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Check 21 Detailed Information

What is Check 21?
The Check Clearing for the 21st Century Act, know as Check 21, is a new federal law that goes into effect on October 28, 2004.

  • It creates a new legally valid paper "item" that banks may use for processing in place of the original paper check.
  • The new item is called a Substitute Check or sometimes an IRD (image replacement document). Click Here to see a sample.
  • You will be able to use a Substitute Check as proof of payment of for any situation in which you would use your original cancelled check. Business owners will also start seeing Substitute Checks presented by customers as proof of payment and need to be aware and prepared for them.

What is the purpose of the Check 21 Act?
Congress has stated the purpose of Check 21 as follows:

  • To facilitate "check truncation" (the use of an electronic image to eliminate paper) by authorizing substitute checks.
  • To foster innovation in the check collection system without mandating receipt of checks in electronic form.
  • To improve the overall efficiency of the Nation's payments system.

How do Substitute Checks help to achieve the purpose of Check 21?

  • Today paper checks must be transported from the bank where they are deposited to the bank where the account is located in order for payments to be made.
  • While Substitute Checks are new paper items, they are expected to pave the way for banks to move into an age of exchanging only the electronic image of your check in the bank to bank processing network.
  • This will allow greater efficiency in the check processing system by reducing the need to move paper checks from bank to bank by ground and air transportation, which is what happens today.

How does Check 21 use Substitute Checks?

  • Check 21 requires all banks to accept Substitute Checks from a bank that has created them.
  • With Check 21, a paper Substitute Check can be printed at some point in the collection process and sent to a bank that will not or cannot accept the electronic image for payment.

How is Check 21 different from electronic payment processes?

  • There are a number of electronic payment programs called conversion programs, in which your check is converted and processed electronically.
  • You may have noticed that some companies you pay by check create an electronic payment and sent it to the bank. It appears on your statement under electronic transactions.
  • Sometimes when you make a purchase at a store, the check is returned to you and the payment is processed electronically.
  • A substitute check, on the other hand, is a paper item, not an electronic payment, and is processed as a paper check.

Sample IRD (Substitute Check)

Check sample front

Check sample back

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