Starting in October 2004, federal law will recognize a new type of payment document called a "substitute check." The Check Clearing for the 21st Century Act, the law that makes this possible, will permit quicker processing of checks by allowing financial institutions to convert your checks to electronic images for collection purposes. Once the image is transferred, the financial institution may create, from the image of the original check, a "substitute check." The government, media and industry call this new ability Check 21.
While the financial industry is working hard to streamline the process and make use of new electronic technology, members will still be able to use the familiar paper check to make payments because the industry is designing a 21st century system that allows paper to work in the electronic world. Here's what to know about Check 21 and you:
- The "float" will disappear... More rapid processing of checks will mean less float (the time between when a check is written and when it clears). Members will have to make sure that adequate funds are in their account when the checks are written to avoid potential problems.
- Consumer rights are protected... Protections for consumers have been built into the law and the regulations. Losses in check fraud cases are typically borne by the credit union or the merchant that dealt with a fraudster, not the consumer. If you ever feel that there are problems with your account, contact us immediately.
- Check 21 should help combat payments fraud... The faster collection and return of checks facilitated by Check 21 should reduce overall fraud in the check collection system.
What is a substitute check?
To make check processing faster, federal law permits financial institutions to replace original checks with "substitute checks." These checks are similar in size to the original checks with a slightly reduced image of the front and back of the original check. The front of a 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 back from us may be substitute checks.
Sample Substitute Check - - Click Here
What are your 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. 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. The amount of the 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. 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. 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 to 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. 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 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: the check number, the name of the person to whom you wrote the check, the amount of the check.