CHECK 21 ACT

The Check Clearing Act of the 21st Century (Check 21) is a new law passed by Congress to improve the overall efficiency of our nation's payment system. Check 21 will impact all financial institutions. The goal is to make check processing more efficient and less costly by fostering the industry’s ability to process checks electronically. This, in turn, will decrease processing time and transportation costs while reducing the likelihood of items being lost or destroyed in transit.

What are the benefits of Check 21?

• Faster check clearing – Funds may make their way through the system quickly and reduce the time you’ll wait for checks to clear. Please make sure that you have sufficient funds in your account prior to writing checks to avoid overdraft charges.
  
  
• Improved check fraud protection – Faster settlement of checks means fraudulent activity can be detected sooner.
  
  
• More secure – Check 21 will help ensure the continuous flow of money in the event of natural and other disasters, such as 9/11.
  
  
• Fewer delays – Checks transferred electronically may result in fewer transportation delays due to severe weather.

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 the 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.

How is a substitute check created?
A substitute check is created when an electronic image of the original check is made. Then, the original check is “truncated” or taken out of circulation. The person or business that creates the electronic image is responsible for truncating the original check, by either destroying it or storing it for a period of time. Institutions can then process the electronic image or use it to create a paper reproduction (i.e. substitute check) at any point in the process.

What will I get back in my statement?
Not all checks that you write will be transformed into substitute checks. However, if a substitute check is created, it is likely that you won’t see the original check again. KNBT currently offers the convenience of FREE check imaging to all customers. Beginning October 28, 2004, the check images you receive by mail or that you view online may be a combination of original check images and substitute check images.