• You won't be able to get your original paper checks back, because your bank will no longer have them. Your check will be held or destroyed by the bank of the person you wrote it to, not by your bank. Your bank won't be able to offer you all your original checks back because it won't have them.
• Checks you write will clear sooner, increasing the risk that a check will bounce if funds are not in the account when the check is first written. Consumers Union advises consumers not to write a check unless the funds are already in the account to cover it.
• You may not get access to the funds from checks you deposit any sooner, because the new law does not shorten check hold times. After 30 months, there will be a study on whether banks are making funds available to consumers earlier than required by law.
• Banks will save money on processing checks, but the new law does not require the banks to share these savings with consumers. Banks will save money as more checks are processed electronically, but the new law does not require that any of these savings be passed on to consumers.
• Banks will get some new opportunities to charge fees. Check 21 creates a new kind of paper copy of an electronic image of a check. This special kind of copy is called a "substitute check," and it is legally equivalent to the original check. Check 21 does not cap the fee that a bank can charge for this special copy.
• A bank other than your bank will have your original check, and will decide whether to destroy it. Neither Check 21 nor current law requires a bank to keep your original check for any period of time. Before Check 21, it was your own bank that decided how long to keep your original checks, if you didn't get them returned with your statement. Now, the bank of the person you wrote the check to will be the bank that decides when to destroy your check.
• Consumers will get new rights for some electronically processed checks, but not for others. When a so-called "substitute check" is provided to a consumer, the consumer will get a right to have funds recredited to his or her account in 10 business days if the check is paid twice, paid for the wrong amount, or otherwise paid in error. The new law is ambiguous about whether this new right applies when a paper substitute check is used in the processing of the check but is not returned to the consumer, but the legislative history suggests that consumers may get this 10 day right of recredit when a substitute check is used in the processing of the check. If a check is processed electronically by all the banks it is routed through, the check remains only under state check law, and the consumer does not receive a 10 day right of recredit if the electronic image of the check is paid twice, or paid for the wrong amount, or if both the electronic image and the original paper check are paid.
• Consumers who want to maximize their consumer rights should ask for return of "substitute checks" with checking account statements. Because of the ambiguity in the right of recredit in the new law, consumers should ask their banks to give them "substitute checks" with their account statements.
• Only the special 'substitute check" will be legally equivalent to the original check to prove payment. The copies that a bank now sends to consumers under a so-called "voluntary truncation" agreement, where the consumer agrees not to get the checks back, do not prove that a payment has been made.

Check 21 becomes effective 12 months after it is signed into law. It is likely to be signed in late October or in November 2003.

Can I still ask my bank to send me my original checks with my monthly statement?

Check 21 would make it impossible for consumers to get their original checks returned with a monthly statement, because Check 21 would force banks which now require the original check for processing to accept a copy of an electronic image of the original check. Banks can give a special paper copy of a picture of the image of the check, called a "substitute check," to consumers instead of the original paper check.

Under Check 21, the original check could stop at any bank in the collection chain. The check would stop for one of two reasons. Any bank can now replace an original check with an electronic message containing the pertinent information, but only if that bank and the next bank in the chain have an agreement to send and accept electronic presentment of checks. Second, Check 21 would permit any bank to send a "substitute check"-a paper copy made from the original check or from an electronic image of the original check-to another bank even if that other bank only processes paper checks. Since the original check would no longer be returned to the consumer's bank, it would be impossible for the consumer to get his or her bank to simply return all original checks every month. The consumer's bank no longer would have all of those checks. Consumers who get their checks back now would experience a loss of convenience under Check 21.

Would the substitute check be a full size check?

Not necessarily. Consumers who want to get their checks back would receive a substitute check, which is a paper copy of an electronic image of the original check. The substitute check may be of any size, so long as it meets industry standards for a substitute check.

Would a substitute check be as useful as an original check?

No. The substitute check would be legally equivalent, under state and federal law, to an original check. However, the substitute check would not be as useful as the original check for proving forgery or alteration, because it can't be used to determine pen pressure, and is less useful for handwriting analysis.

Would all electronic images of checks be legally equivalent to an original check?

No. A consumer whose account agreement does not require the return of substitute checks may receive copies of electronic images, but those copies will not be legally equivalent to the original check. Check 21 does not require banks to offer an account that gives consumers substitute checks with their bank statements. In those states where banks are required by law to give consumers an option to receive their original checks back, banks will be able to send back substitute checks instead.

Does Check 21 require that the copies of checks banks send to consumers must meet any standards for size or readability if the copy is not a special substitute check?

No. Existing state law requires that banks maintain a legible copy of checks for seven years, but not that the copies returned to consumers with statements be legible. Some banks have returned check images with statements with ten or more images per page, which can be hard to read.

Does Check 21 require the bank to get and return an original check if the consumer requests that check?

No. Check 21 doesn't require banks to return even a single original paper check on request.

If a substitute check was used and there is a dispute about whether the check was properly paid which requires the original check to resolve, then the bank may have to find the original check if it does not want to resolve the dispute in the consumer's favor. If the consumer needs the original check for any reason other than a dispute with the bank, Check 21 creates no right to get that original check.

Does Check 21 restrict the fee that a bank can charge for finding and returning the original check?

No.

What would happen to the original checks under Check 21?

Check 21 does not impose any minimum time period on banks to keep original checks. Under state law, Uniform Commercial Code Article 4, original checks can be destroyed at any time, as long as the bank has to capacity to provide a legible copy of the check for seven years. UCC section 4-406(b).

Will a bank be able to use information from the electronic images of checks to invade the privacy of a consumer or a business?

Yes. Check 21 places no limits on a bank's use of information contained in its customer's check images. A bank might build a database using check images to determine which of its consumers shop at certain kinds of retailers, or what kinds of suppliers a business customer uses.

Who gets a choice under Check 21?

Check 21 offers maximum choice to banks, but not to consumers. Banks may continue to choose to process paper substitute checks rather than electronic images. A bank that wants to process paper will receive from the prior bank in the collection chain a paper "substitute check," rather than the original check, for processing. Consumers may no longer choose to get back their original checks.

Are there any benefits to consumers?

Yes, but consumers won't receive the benefits for all electronically processed checks. Check 21 gives a ten business day right of recredit of disputed funds, up to the first $2,500 of a check amount, but only for checks that are processed partly using a special paper copy of the electronic image of the check (a substitute check). The recredit right appears to recognize that consumers who have a dispute with the bank over the validity of a charge to a checking account should not have to wait to resolve the dispute while the bank tries to learn where the original check is in the check collection system, and while the original check is being returned to the consumer's bank. However, consumers would get this right only for some electronically processed checks, and not for others.

Why do consumers need the right of recredit?

Consumers can be harmed in several ways by the processing of an electronic image rather than the original check. First, both the paper check and the electronic image might be paid (double debit). Second, transferring the check back and forth between paper and electronic formats creates a risk that the amount on the paper check might be changed when it is turned into an electronic image for processing. Third, it may be impossible to prove that a check has been forged or altered without the original check. The switch to electronic imaging of checks means that the original check would not be held by the consumer or the consumer's bank. Instead, one of the other banks in the collection chain would have the original check. It is likely to take longer to find the check, and to get it back, than if the consumer or the consumer's bank were holding it. A recredit right means that the consumer, not the bank, has the use of the funds while waiting to resolve the dispute.

When do consumers get a recredit right under Check 21?

Check 21 gives a recredit right only when a substitute check is used. Check 21 is ambiguous about whether or not that substitute check must be returned to the consumer before the recredit right attaches. Federal law on other electronic payments, such as debit card payments, gives consumers a right of recredit. Check 21 extends this right for only some electronically processed checks. The recredit right would be valuable if it applied in every case where a check is processed fully or partly by electronic means, but under Check 21 the recredit right applies only when a so-called "substitute check," which is a paper copy of an electronic picture of the check, is used.
 

How long will it take to get the disputed funds recredited?

The recredit must occur within ten business days, but the funds need not be made available until the next business day. If the check in dispute is more than $2,500, only the first $2,500 must be recredited in the 10 business day period.

Why didn't consumer groups support Check 21?

Consumers Union and other consumer groups believe that consumers should have a right to recredit for every check that is processed wholly or partly electronically. In addition, Check 21 has other flaws. It does not restrict the fees for a substitute check or for the original check when requested by a consumer, and it does not restrict how a bank uses information from its customers' check images.

Is the paper check a mere redundancy?

Redundancy may have value in an age of increasing dependence upon electronic systems that can fail and can be compromised. The increasing dependence of our financial system on electronic images might present a short-term efficiency gain, but also may expose U.S. consumers to a heightened risk of disruption in the payment system if there are disruptions to electronic communications.

Prepared by:

Gail Hillebrand
Senior Attorney
Consumers Union West Coast Regional Office
1535 Mission St.
San Francisco, CA 94103
415-431-6747 (phone)
415-431-0906 (fax)
hillga@consumer.org