Money Sense

Check 21 reduces check-clearing time from days to hours
The Check Clearing for the 21st Century Act (Check 21) will cut the time it takes a check to clear from days to hours. So think about whether you need to change your checking habits.

Starting Oct. 28, 2004, the Check 21 law helps financial institutions send checks electronically to each other by "truncating" the movement of paper checks by converting them to electronic files. This is something that most credit unions have been doing for years, but banks are only starting to do.

Check 21 allows any financial institution that doesn't want to receive a check in electronic form to request a paper copy of the electronic check. This converted paper check is called a "substitute check." A substitute check is more than a photocopy or paper image of the original check-it's required to meet strict standards to qualify as the legal equivalent of the original check.

What does this mean to you?
Say, for example, that you write a check to your local discount store. The discount store deposits your check in its bank and gets its money. Now the discount store's bank has to get its money from SCCU. The discount store does not like dealing with paper checks so it sends an electronic image of it to the Federal Reserve Bank. This process is faster and less expensive than paper. The Federal Reserve Bank sends money to the discount store's bank. Now the Federal Reserve Bank has to collect its money from SCCU. If SCCU wanted paper, the Federal Reserve Bank would send us a substitute check that is a printed copy of the real check.

When will you see a substitute check?
A substitute check will look like the check you've written, but will be somewhat smaller in size and on different paper stock. The front and back will contain all the information that appeared on the original check at the time it was truncated.

Here's when you might receive a substitute check:

Substitute Checks and Your Rights

What is a substitute check?
To make check processing faster, federal law permits banks to replace original checks with "substitute checks." These checks are similar in size to 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 SCCU may be substitute checks. This notice describes rights you have when you receive substitute checks from SCCU. The rights in this notice do not apply to original checks or to electronic debits to your account. However, you have rights under other law with respect to those transactions.

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 (for example, if you think that the wrong amount was withdrawn from your account or that money from your account was withdrawn 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 also are entitled to dividends on the amount of your refund if your account is a dividend-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 dividends if your account earns dividends) within 10 business days after your claim is received and the remainder of your refund (plus dividends if your account earns dividends) not later than 45 calendar days after your claim is received.

SCCU may reverse the refund (including any dividend on the refund) if it later is able to demonstrate that the substitute check was posted correctly to your account.

How do you 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 write to SCCU at the address listed on your statement. 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. SCCU 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 or information to help us identify the substitute check, for example the check number, the name of the person to whom your wrote the check, and the amount of the check.

Bottom line: You probably won't see a substitute check often. But your check frequently may be converted into an electronic file and speed through the payment process, so you will begin to see checks cleared more quickly than in the past. Be sure you have the funds in your account on the day you write a check, and if you haven't already done so, set up overdraft protection for your checking account.

Contact SCCU Member Services at (321) 752-2222 or (800) 447-7228 if you have any questions about charges to your account, or if you would like to arrange for overdraft protection.

The information on this page is for educational purposes only. SCCU is not engaged in providing estate planning or other advice. Please consult with a competent estate planning professional regarding any specific estate planning questions.