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Check 21 Act

What is the Check 21 Act?

The Check Clearing for the 21st Century Act or “Check 21 Act” becomes effective on October 28, 2004. It was designed to improve the efficiency of the check processing system, decrease costs, and reduce the country’s dependence on the physical transportation of checks.

Companies in the United States have begun to use a process of converting consumer paper checks into electronic payments. This process will save the U.S. economy billions of dollars annually and will cut down on the amount of paper you keep.

This is part of the nation’s overall migration to electronic payments that started over 30 years ago with Direct Deposit. These electronic payments are processed over the Automated Clearing House (ACH), a secure network (not the Internet) used by banks and credit unions to transfer billions of dollars daily.

The Check 21 Act will facilitate the use of electronic check processing without mandating that any bank change its current check collection practices. This will be accomplished by creating a new type of document called the “substitute check”. Banks will be allowed, at their option, to convert paper checks into digital images, transmit these images electronically, and then convert the images back into paper substitute checks.

Electronic payments are private and secure – a network of computers does the work. You do not need to do anything new or different. A company that sends you bills (credit card, utility, and mortgage) notifies you that it will use the check conversion process via an enclosure in your bill or a statement on your bill. You write a paper check for the amount of your payment and mail the payment. The company converts the check into an electronic payment, stores a copy of he check and then destroys the original paper check. The payment shows up on your account statement with the date of the payment, the name of the company paid, the check number, and the amount of the payment. The efficiency of the nation’s payment system requires shifting from paper checks to electronic payments. This change is in everyone’s best interest. Electronic transactions provide more privacy and federally regulated protections than paper checks; electronic payments can result in less fraud and fewer errors; and electronic processing is less costly than paper processing.

What is a “substitute check”?

A “substitute check” is a paper reproduction of the original check that:

  • Contains an image of the front and back of the original check;
  • Bears a Magnetic Ink Character Recognition (MICR) line containing all the information appearing on the MICR line of the original check;
  • Conforms to the established standards for substitute checks; and
  • Is suitable for automated processing in the same manner as the original check.

Under the Check 21 Act, a substitute check is the legal equivalent of the original check for all purposes under federal and state law. The front of a substitute check will contain the legend “This is a legal copy of your check. You can use it the same way you would use the original check.”

How will I be affected?

Effective October 28, 2004, the bank will be required to accept, process, and return substitute checks. Some of the checks that you receive back from us in your monthly checking account statement may be substitute checks. Should your check(s) be processed using an electronic image, we will receive a substitute check in lieu of your original check for payment against your account. Whether a customer receives any of their original checks back is out of Newfield National Bank’s control.

What will happen to my original checks?

There are currently no federal laws governing the retention of original checks. Once a digital image or substitute check has been created, they may be stored and eventually destroyed according to state record retention laws. The record retention laws for each state are different.

Example of a personal substitute check:

Check 21 Act

Check 21

Do I have a choice in accepting substitute checks?

An original check is no longer available when a substitute check is created. The Check 21 Act requires that all financial institutions and their customers accept a substitute check in lieu of the original check. The Act does not allow financial institutions or customers to “opt-out”.

Will I still receive original cancelled checks in my monthly statement?

Yes. You will continue to receive cancelled original checks in your monthly statement; however, some of these checks may be substitute checks that we have received from other financial institutions.

Will the Check 21 Act have any other impact?

Once the Check 21 Act becomes effective, checks that you have written may reach the paying bank more quickly and may take less time to clear your account. Customers should always make sure that sufficient funds are in their account before writing a check.

Where can I receive additional information regarding the Check 21 Act?

For additional information, see any Branch Manager, Assistant Branch Manager, or Customer Service Representative OR call 1-800-690-3440, extension 1125.

How does check conversion work?

The company that sends you bills (credit card, utility, and mortgage) notifies you it will be using the check conversion process. You write a paper check for the amount of your payment and mail it to the company. The company converts the check into an electronic payment, destroys the paper check and stores a copy of the check. The payment shows up on your account statement with the date of the payment, the name of the company paid, the check number, and the amount of the payment.

What happens to the paper check?

During the check conversion process, the paper check is copied, stored and the original check is destroyed. These steps ensure that the check cannot be used for any other purpose. The company that bills you keeps the copy of the original check for two years.

Can I get a copy of the check?

You can obtain a copy of the check from the company to which you sent the check or from your financial institution. All of the relevant information will be on your bank or credit union account statement. Your account statement is generally an accepted form of proof of payment.

How do I prove I paid the bill?

Your account statement will list the check number, the date of the payment, the name of the company you paid, and the amount of the payment. The information on your account statement is generally recognized as proof of payment and is accepted by the IRS.

Can companies take extra money from my account using check conversion?

No. The company is allowed to deduct only the amount of the check.

Can companies see how much money I have in my account?

No. The only account information available to the company during the check conversion process is what is on the paper check, such as your name, address, account number, bank routing number, and the amount of the payment.

What if the wrong amount is deducted or my payment is deducted two times?

Problems with check conversion are rare. If a problem does occur, contact the company or financial institution right away and it will correct the problem.

Where does check conversion show up on my account statement?

A check that has been converted to an electronic payment may appear in the same space as your ATM withdrawals, debit card payments, and other electronic payments, or may be included in the check listing. Your account statement will list the date of the payment, the name of the company paid, the check number, and the amount of the payment.

Can I put a stop payment on the check?

Yes. As with a paper check, you place a stop payment before the payment is posted to your account.

Is the payment deducted from my account faster when the paper check is converted?

Generally, the payment may clear faster when a company has converted the paper check to an electronic transaction. Consumers should be sure they have adequate funds in their account to cover the amount of their payments.

Is check conversion governed by any regulations?

The Federal Reserve’s Regulation E and industry operating rules regulate electronic payments. The check conversion process allows consumer protection under the same regulations that consumer debit cards are protected.

Is check conversion new?

No. Check conversion has been in place for five years using the same secure Automated Clearing House (ACH) network that the Federal Reserve and the nation’s financial institutions use to process electronic payments. The ACH is also the network that has been used for over 30 years for Direct Deposit and Direct Payment. At present, check conversion is for consumer payments only.

Is check conversion safe?

Yes. Electronic payments are safe. The payment information is transferred through computers over a private network protected by encryption, message authentication codes and other security procedures.

Who authorizes a check conversion?

You do, after the company has notified you that your paper check will be converted and you mail your check. The company is required to notify you that paper checks will be converted either by a notification on your bill or by an enclosure in your bill.

What are my rights regarding substitute checks?

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 are also 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. If you use this procedure, you may receive up to $2,500.00 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.

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.

How do I make a claim for a refund?

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 at 1-(800)-690-3440,, or 18 S.West Boulevard, Newfield, NJ 08344. 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 and/or the following information to help us identify the substitute check: (identifying information, for example, the check number, the name of the person to whom you wrote the check, the amount of the check, etc.).
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