What is Check 21?

A New federal law that takes effect 10/28/2004

  • Designed to increase the efficiency of the check processing system, reduce costs and make it less susceptible to delays. Example of delays- 9/11/01 since all planes were grounded during 9/11 period, check transportation was delayed. Ground transportation had to be used. This caused major delays.
  • Check fact- $8 billion per year spent on check processing and transportation
  • The Check 21 act will affect all financial institutions and their customers, as well as fraud investigators and prosecutors.
  • Check 21 allows (but does not require) any financial institution in the check clearing chain to truncate any check (business or commercial) and convert it to an image.("Truncate" means to remove an original paper check from the check collection or return process and replace it with an electronic image.)
  • Check 21 provided the initial framework regarding check truncation. Many of the details of the act are still being formulated by multiple committees.

    FAQ'S

    Q: Will this reduce the need for checks?
    A: No. Check 21 will not affect the need for an original check to be presented. It legislates what can happen to that check once it is presented for payment.

    Q: What does it mean your client asks if their checks are "Check21 Compliant"?
    A: The main standard that is referred to in the Check21 Legislation is the ANSI X9.7 standard for Image Readiness.(Image Readiness- means the ability of a check to be scanned and converted into a electronic format) While the ANSI X9.7 standard is voluntary( not mandatory) some financial institutions are gearing up for conformance to Check21/Image Ready Standards.

    Q: Who is ANSI?
    A: ANSI is the American National Standards Institute. The ANSI X9 Board determines approval for voluntary American National Standards for Financial Services. The American National Standards Institute (ANSI) is a private, non-profit organization that administers and coordinates the U.S. voluntary standardization and conformity assessment system.

    Q: What will happen in October 28th 2004?
    A: It all depends on the banks/financial institutions.

  • If the next bank in the check clearing chain agrees that they will accept an image, an image can be sent.
  • If the next party doesn't agree to accept an image, a "substitute check" is created and transmitted.(See below for information on Substitute Checks) On checks that customers write the payor bank:
  • May get the original check back
  • May get a copy of an image
  • May get a substitute check

    Q: What is a Substitute Check?
    A: A Substitute check is a paper reproduction of the original check that:
    1. Contains an image of the front and back of the original check
    2. Bears a MICR line containing all the information appearing on the MICR line of the original check. A substitute check shows the routing number of the truncating bank and the number of the bank creating the substitute check.

  • A substitute check that meets all the criteria in the law is the legal equivalent of the original for all purposes under state and federal law.
  • In any given case, a substitute check may be all that's available for investigation and prosecution of fraud.
  • Under Check 21 a party must accept a substitute check. When some other party in the chain truncates a check a customer has written - (This can be any bank in the chain) - a substitute check will be the only paper form of the check anyone can insist upon receiving Examples of Substitute Check created by scanning an original document:

    Q: What will be the net result to bank customers?
    A:

  • Whether customers can get all their original checks back is out of the paying bank's control (the party that truncates keeps the original and can destroy it after a period of time).
  • The length of time the original must be kept is not set by law. It will be set by clearinghouse rules and other agreements.

    Q: What is Data Supplies Source doing to prepare for Check21/Image Ready standard?
    A: Data Supplies Source is ready and able to comply with the ANSI X9.7 Image Ready standards put into place on January 1st, 2001 and referenced in the new Check21 Legislation. Data Supplies Source can design any check or convert any check to Check21 Standards/Image Ready Standards. These standards have already been implemented on our FormSource and FormSource Limited Line of software Compatible checks since 2001.

  • All FormSource Software Compatible Templates are Image Ready.
  • All FormSource Limited and Copy Alert base stock is also Image Ready.
  • Standard Data Supplies Source Pantographs and ODT Void Pantographs are Image ready.

    Q: Can we change a repeat custom check order to Check 21/Image Ready Standards?
    A: Yes. We can make the design changes to any repeat check job to comply with Check21 standards. You will want to make your customer aware that their may be a slight change to the aesthetic look of the document.

    Q: What if you would like a new check designed to Check21/Image Ready Standards?
    A: Please mark on your purchase order that you would like the check job designed to Check21/Image Ready standards.

    Q: What are banks doing to enforce Check21?
    A: Since Check21/ANSI X9.7 is a voluntary standard, most banks are not enforcing Check21/Image Ready standards at this time. Some large Banks may begin to suggest to their customers that they redesign their checks to image ready standards. At this time we have not seen banks request Check21/Image Ready compliance for the short run check products that Printegra produces.

    Q: If you would like to make a document Check21 Compliant/Image Ready, what changes (if necessary) will be needed to comply?
    A: For the document to be image ready. The requirements are:

  • The Check background must drop out when scanned. This will not be an issue on any Printegra standard pantograph or ODT Void pantograph run a 10-15% screen density. It may be an issue if a customer is using Cross/Hatched colored safety paper or is using a custom step and repeat or ghost/reversed pantograph.
  • No solid boxes or reverses in the Area's of interest (AOI) on a check. Use plain text in place of the reversed out boxes.(See example below)
  • 5/8" Clear Band in the MICR area.

    Q: What are the Area's of interest (AOI) on a check?
    A: Areas of interest (AOI) are the areas on a check that contain the critical data needed for imaging. These areas include the Date, Payee, Legal Amount, Signature Lines and the MICR Line Area.

  • Numerical Amount
  • Date
  • Payee
  • Legal Amount (Amount Spelled out)
  • Signature
  • MICR Line Area (5/8" Clear Band)

    Q: How can you quickly verify if a repeat job is Image Ready?
    A: You can visually check to see if it complies with Check 21/Image Ready standards but short of testing every negotiable document, there is no conclusive way to determine if a negotiable document is "Image Ready"

    Q: Can Printegra Test a custom or MyFormSource check and verify that it is Check21 Compliant?
    A: Yes. Since 2001 Printegra has RDM Image Ready Testing Equipment. This is the same equipment used by banks and our competitors to test if a check is Image Ready. Printegra can test any new or repeat check at no-charge. If you would like to have a check tested for Check21/Image Ready Compliance please send the check sample to: Check 21
    Printegra/ Image Ready Testing
    403 Westpark Ct.
    Peachtree City, GA 30269
    **Please include your email address so that we can forward you the test results. At this time we do not feel that mass testing is necessary. It would only become necessary if banks begin converting checks to images and begin enforcing Image Ready Standards on a large scale.

    Q: Should you proactively bring Check21/ Image Ready to the attention of your customers?
    A: Our advise would be to be prepared to answer basic questions as outlined in this FAQ, about Check21 and Image Ready. The main thing that you want to convey to your customer is that there is no need to worry. If and when banks begin to require checks become Image Ready/Check21 compliant you are ready. If you would like more information on Image Ready you can refer to the Image Ready Section of Printegra.com. It is located under the product & services tab on our home page. These websites also contain useful Check 21 Act information.
    American Bankers Association www.aba.com
    America's community Bankers www.acbankers.org
    Consumer Bankers Association www.cbanet.org
    Credit Union National Association www.cuna.org
    ECCHO www.eccho.org
    Federal Reserve Board www.federalreserve.gov/paymentsystems/truncation
    Federal Reserve Banks www.frbservices.org/Retail
    NACHA-The Electronic Payments Assoc. www.nacha.org
    ANSI X9 www.x9.org

     

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