• On October 28, 2003 Congress unanimously passed & On October 28, 2003 Congress unanimously passed & President Bush signed into law the Check Clearing for the 21President Bush signed into law the Check Clearing for the 21stst Century Act or Check 21, to become effective on October 28, Century Act or Check 21, to become effective on October 28, 2004. This is the first major change in check processing since 2004. This is the first major change in check processing since 1957.1957.

• Allows creation of Substitute Check (IRD) covered under new Allows creation of Substitute Check (IRD) covered under new standard ANSI X9.9standard ANSI X9.9

• ALL ChecksALL Checks are eligible for replacement with a substitute are eligible for replacement with a substitute check.check.

• ALL SubstituteALL Substitute checks must be accepted by all parties, checks must be accepted by all parties, no no exceptionsexceptions..

1.1. Contains an image of the front & back of the original Contains an image of the front & back of the original check & the image is truncated.check & the image is truncated.

Is a paper reproduction of the original check & is the legal Is a paper reproduction of the original check & is the legal equivalent of original check for all purposesequivalent of original check for all purposes

AN

SI X

9.90

DST

UFrontFront

BackBack

2.2. The MICR line conforms to industry standards for The MICR line conforms to industry standards for substitute checks.substitute checks.

Is a paper reproduction of the original check & is the legal Is a paper reproduction of the original check & is the legal equivalent of original check for all purposesequivalent of original check for all purposes

AN

SI X

9.90

DST

UFrontFront

BackBack

3.3. The physical specifications conform to industry standards The physical specifications conform to industry standards for substitute checks.for substitute checks.

Is a paper reproduction of the original check & is the legal Is a paper reproduction of the original check & is the legal equivalent of original check for all purposesequivalent of original check for all purposes

AN

SI X

9.90

DST

UFrontFront

BackBack

4.4. The substitute check is suitable for automated bank The substitute check is suitable for automated bank processing.processing.

Is a paper reproduction of the original check & is the legal Is a paper reproduction of the original check & is the legal equivalent of original check for all purposesequivalent of original check for all purposes

AN

SI X

9.90

DST

UFrontFront

BackBack

5.5. Bears all legends, endorsements & identifies partyBears all legends, endorsements & identifies party creating it. creating it.

Is a paper reproduction of the original check & is the legal Is a paper reproduction of the original check & is the legal equivalent of original check for all purposesequivalent of original check for all purposes

AN

SI X

9.90

DST

UFrontFront

BackBack

• 5 indicates a Returned Item - NSF5 indicates a Returned Item - NSF

• 4 indicates a Substitute Check4 indicates a Substitute Check

External Processing Code (EPC) – Position 44 on MICR lineExternal Processing Code (EPC) – Position 44 on MICR line

AN

SI X

9.90

DST

UFrontFront

BackBack

Transit & Return Clearing – Banks can image an item, Transit & Return Clearing – Banks can image an item, transmit that image to a distant location where a substitute transmit that image to a distant location where a substitute check will be printed check will be printed closeclose to the bank that ultimately needs to to the bank that ultimately needs to pay the item, thus speeding the collection process. Returned pay the item, thus speeding the collection process. Returned items can be processed in the same manner thus reducing items can be processed in the same manner thus reducing risk.risk.

Intermediary

Paying Bank

BOFD

Traditional Paper Collection

Check Check Check

Intermediary

Paying Bank

BOFD

Sub Ck

Substitute Check Collection

ImageCheck

• Remote Depositing – ATMRemote Depositing – ATM

• Image Exchange through agreementsImage Exchange through agreements

• Lockbox – ARCLockbox – ARC

• Point of Purchase – POP/ACH DebitPoint of Purchase – POP/ACH Debit

• Cash ConcentrationCash Concentration

• Bank that creates the substitute check warrants that the Bank that creates the substitute check warrants that the substitute check meets all requirements for legal substitute check meets all requirements for legal equivalencyequivalency

• Warrants that it is not a double debitWarrants that it is not a double debit• The bank that creates the substitute check, and each The bank that creates the substitute check, and each

subsequent bank, indemnifies all parties in the collection or subsequent bank, indemnifies all parties in the collection or return process if the loss is due to the receipt of a substitute return process if the loss is due to the receipt of a substitute check instead of the original check.check instead of the original check.

• Comparative Negligence – If the loss results from Comparative Negligence – If the loss results from negligence or failure to act in good faith, then negligence or failure to act in good faith, then indemnification shall be reduced in proportion to the amount indemnification shall be reduced in proportion to the amount of negligence or bad faithof negligence or bad faith

• Security Features destroyed with the creation of substitute Security Features destroyed with the creation of substitute checkcheck

PAYING BANK

RECONVERTING BANK

Sub Ck

CLAIM CLAIM

40 DAYS

$$$10 DAYS

10 DAYS

ConsumerStatemen

t

• Paying bank must provide consumer with original check, copy of Paying bank must provide consumer with original check, copy of original check or recredit within 10 days of claim up to $2,500 per original check or recredit within 10 days of claim up to $2,500 per checkcheck

• Amounts > $2,500 must be recredited to consumer within 45 daysAmounts > $2,500 must be recredited to consumer within 45 days• Paying bank must make claim to reconverting bank within 120 Paying bank must make claim to reconverting bank within 120

days of of transaction that gave rise to claimdays of of transaction that gave rise to claim• Reconverting bank must provide recredit, original check or copy Reconverting bank must provide recredit, original check or copy

within 10 days of paying bank claim within 10 days of paying bank claim

120 DAYS

Check, Copy

or $$$

• ANSI X9.18ANSI X9.18 Paper Specification of ChecksPaper Specification of Checks

• ANSI X9.13ANSI X9.13 Specifications for placement of MICRSpecifications for placement of MICR

• ANSI X9.27ANSI X9.27 Print & Testing of MICRPrint & Testing of MICR

• ANSI X9.53ANSI X9.53 Specifications for Check EndorsementsSpecifications for Check Endorsements

• DTSU X9.37DTSU X9.37 Electronic Exchange of Check Image Electronic Exchange of Check Image Data (Truncation)Data (Truncation)

• ANSI 9.7ANSI 9.7 Next slide – check background andNext slide – check background andConvenience Amount Field (CAR)Convenience Amount Field (CAR)

The following ANSI standards will apply to Check 21 under ANSI 9.9The following ANSI standards will apply to Check 21 under ANSI 9.9

• ANSI X9.7ANSI X9.7 Check background and Convenience Amount Field Check background and Convenience Amount Field (CAR)(CAR)

The Courtesy Amount, Date, Payee, Signature & Legal The Courtesy Amount, Date, Payee, Signature & Legal Amount Amount Line must meet the minimum reflectance standards to Line must meet the minimum reflectance standards to truncate truncate original original checks by the banking industry.checks by the banking industry.

Courtesy AmountCourtesy Amount Reflectance > 60%Reflectance > 60% Max. contrast PCS < Max. contrast PCS < 0.30.3

Legal Amount LineLegal Amount LineDate, Payee, &Date, Payee, &SignatureSignature Reflectance > 40%Reflectance > 40% Paxel Count < 12Paxel Count < 12

PaxelPaxel Is a group of pixels in binary images 0.10 x .010.Is a group of pixels in binary images 0.10 x .010.Paxel count is the number of continuous Paxel count is the number of continuous

pixels.pixels.

• File SizeFile Size Although not a requirement of the Check 21 Act, it is Although not a requirement of the Check 21 Act, it is suggested that the file size of the original suggested that the file size of the original

business business check be between 25 to 40 kb for truncation. check be between 25 to 40 kb for truncation.

Personal Personal checks 8 -12kb.checks 8 -12kb.

Critical areas of check - TestingCritical areas of check - Testing