Home	Print-friendly version

On October 28, 2004, the Check Clearing for the 21st Century Act (Check 21) will take effect.  Passed by Congress and signed by President Bush on October 29, 2003, this Act is an effort to begin automating the massive American check-processing system. 

The Federal Reserve Board provides the following information to help you understand your expedited recredit rights under Check 21.  This information pertains only to checking accounts held by consumers.

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 on 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.  This notice describes rights you have when you receive substitute checks from us.  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 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 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  The losses you may attempt to recover under this procedure may include the amount that was withdrawn from your account and fees that were charged as a result of the withdrawal (for example, bounced check fees).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 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 (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, in writing, at:

Middlesex Savings Bank
Attn: Item Processing Department
36 Summer Street
Natick, MA 01760

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 statement that you suffered a loss and 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 the following information to help us identify the substitute check:  the check number, the amount of the check, the date of the check, and the name of the person to whom you wrote the check.

Expedited Recredit Form

Click above to print a copy of the Expedited Recredit Form.  This form provides space for you to fill in all necessary information for your claim to be filed.  Please note, the form should be mailed to the address above, which is also listed at the bottom of the form.  Also, the expedited recredit provisions of Check 21 do not apply to business checking accounts.

Frequently Asked Questions from the Massachusetts Bankers Association:

What is happening to checks on October 28, 2004?

On October 29, 2003, President Bush signed into law the Check Clearing for the 21st Century Act (Check 21). The act was sponsored by several members of Congress representing both parties, with strong support from the Federal Reserve System. The Act is an effort to begin automating the massive American check-processing system. To facilitate the move toward electronic check processing, by October 28, 2004, banks must accept a substitute check in place of actual checks, while continuing to accept actual checks as the system evolves. This new law is likely going to have a profound impact on the evolution of the payments or check -processing system, escalating the trend toward electronic processing.

Why automation?

For years the Federal Reserve and others involved in the U.S. monetary system have been advocating modernizing the check-clearing process. Currently, about 40 billion checks a year are passing through the check payments systems, largely through a manual process involving bags and bags of checks moving in the air and on the ground every single night between banks, with the Fed in the middle. Efforts toward modernizing this process have been gaining momentum for some time. For many years the use of debit cards, online banking, automated clearing house (ACH) and other forms of electronic commerce have been reducing the number of traditional paper checks moving through the system. (The Federal Reserve now processes about 10 billion less paper checks than it did in 1979.) When the events of September 11, 2001 occurred, the aviation-delivery component of check processing stopped completely for days and many people, for the first time, realized there must be a better, more efficient way to process payments.

What checks will be affected?

The checks impacted by Check 21 include consumer checks, business checks, cashier checks, teller checks, treasury checks and travelers' checks.

How will it work?

Here is how a typical substitute check will be created beginning Oct. 28: A grandmother (payer) in Massachusetts sends her grandchild (the payee) in California a check drawn on "Bank A" in Massachusetts. The grandchild deposits the check in "Bank B" in California. "Bank B" decides not to process the paper check in the traditional manner, rather it electronically transmits the check to the Federal Reserve Bank. The Federal Reserve Bank of Boston then creates a substitute check and presents it to "Bank A" for collection. The substitute check then appears in the grandmother's monthly statement. The traditional paper collection process would have entailed handling this check multiple times and transporting the check via ground and air couriers from California to Massachusetts --a process that could take days. By utilizing electronics and a substitute check, the process is now reduced to hours.

What's changed and why?

In the scenario above, even though "Bank A" may have not yet invested in its own ability to create substitute checks, it has --must have --the capability to accept them. At the end of the month it would either return a paper version of the substitute check to the grandchild or an image of it with others in the statement mailing. Customers will receive either their original check or a newly created substitute check when they receive their statements. The substitute check is, in effect, the documentation of the electronic processing of the check.

What is a substitute check?

A substitute check is, well, just that -a substitute check that includes all of the information on the paper original- images of both sides including the signature -and it is encoded. The substitute check is the legal equivalent of the original paper check. The substitute checks or their images are acceptable as evidence of payment and are included with monthly statements. Consumers who receive substitute checks have greater fraud protection and also receive expedited re-credit rights associated with improper charges.

Does Check 21 pertain to business checking as well?

Yes. Business customers must understand that they also will start seeing substitute checks in their statements.

Is a substitute check the same as check imaging --like what some people see in bank statements now?

No. A substitute check is not the same as a check image or check imaging. Many banks provide check imaging now. As of Oct. 28, those banks that provide image statements will "image" both traditional and substitute checks and return images of both in their statements. Substitute checks and traditional checks will coexist until every bank adopts check imaging technology and all customers can receive image statements or check images through on-line banking systems. Obviously, this could take some time.

What's happening in the back offices at banks and at the Fed?

As Check 21 begins, the volume of substitute checks is expected to be modest at first. Many checks will continue to be processed as they are today. The decision to convert a check into a substitute check could be made by the payee's bank, an intermediary like the Federal Reserve, or the payer's bank. The Fed, or other payment processors, act as the intermediary as they do now when traditional checks are presented for payment. However, down the road, banks may make arrangements with one and another to directly exchange images of checks when all parties are capable.

Why is "playing the float" not a good idea?

Customers may not know which banks are using substitute checks or which are not. Therefore, they must assume there will no longer be a float to depend on. (Playing the float has always been illegal -you cannot legally draft a check knowing the money is not in your account.) After Oct. 28, the customer who is used to writing a check on a Wednesday to be covered by Friday's paycheck could be out of luck. It could clear as fast as Wednesday night.

How will consumers obtain check copies for legal reasons?

The payer-bank has the responsibility to hold copies (front and back) of both original paper checks and substitute checks for seven years. A customer's own bank will assist, as they do now with original paper checks, or in obtaining a copy of the substitute check in the event that the customer needs it for legal reasons.

Re-credit Rights: What should you do if there is an improper charge to your account?

Consumer customers will have 40 calendar days following the issuance of account statements to register claims against alleged improper charges. Banks must resolve all claims within 10 business days of receiving a claim, or re-credit the consumer customer up to $2,500 pending completion of the bank's investigation. If the bank still cannot resolve the claim within 45 days of the claim date, it must re-credit the consumer customer's account for the balance of the substitute check.

Does Check 21 impact other banking instruments?

The Check 21 provisions exclude non-cash items such as passbooks or certificates without routing or transit numbers in magnetic ink.

What's the best advice for consumers and businesses?

Many customers will notice little changes at first, except a quicker processing of checks. However, as always, bank customers should review their monthly statements as soon as they receive them. State and federal laws provide many protections against identity theft, fraudulent transactions and other inappropriate actions, but the protections only work if customers review their statements and report any discrepancies promptly to their bank.

If you have further questions about Check 21, please call 1-877-INFO CTR    (1-877-463-6287) to speak with a Customer Service Representative.