A substitute check is an image or a copy of an original paper check. Even if banks use electronic images of a check, the copy is a valid form of payment, and is just as good as the paper check itself. As a result, banks can pay funds from a checking account based on the image alone.
As a result of the Check 21 Law, banks process check payments faster than in the past. If you write a check, that may be bad news because the funds will be deducted from your account more quickly—or the check will bounce if you don’t have cash available, and you don't want that. When you receive a check, speed is a good thing because you get paid sooner.
To be considered a substitute check under Check 21, the image must meet certain requirements. Among other things, it must clearly show the front and back of the check, and explain: "This is a legal copy of your check. You can use it the same way you would use the original check."
What's Not Substitute Check?
There is some confusion about what is and what is not a substitute check. A basic photocopy or image of a check is not a substitute check under Check 21. As a result, it cannot be used to move funds from one bank to another.
A “converted” check also does not qualify as a substitute check. Converted checks are paper checks that get converted into electronic payments by businesses you write checks to. That might happen when you hand your check to a cashier, and the cashier runs it through a check reader at the register. Converted check payments do not fall under Check 21 rules—they fall under electronic funds transfer rules, instead.
Who Uses Substitute Checks?
Banks use substitute checks to collect funds from other banks. Businesses and individuals you write checks to do not create substitute checks, and when you receive a check, you are not responsible for creating a substitute check. When a substitute check is created by your bank, your transaction is subject to the laws that govern traditional check activity—not electronic transactions. However, you have additional rights under Check 21 (see below).
That said, an individual or a business can indirectly create a substitute check or contribute an image that becomes part of an official document. If you pay somebody who uses a mobile device to deposit the check, the bank might convert the image into an official substitute check.
For the most part, substitute checks work behind the scenes. Consumers and businesses typically won’t know or care if a substitute check exists.
Identifying Substitute Checks
How do you know if an image of a check is really a substitute check? Look for the wording "This is a legal copy of your check. You can use it the same way you would use the original check." The check image, along with all the accompanying information, becomes an Image Replacement Document (IRD). IRD is another term for substitute check.
If you have an IRD, you can use it to document payments you’ve made as if it was the actual check you used. For example, your bank statement might show payments you made during your statement cycle, and you see the substitute check (instead of receiving copies of your original checks). Those images can help you prove that you paid certain expenses, and should be just as good as an original, in most cases.
Problems Created by Substitute Checks
As with other electronic processes, substitute checks make things happen faster. That may be a good thing (by bringing fraud to your attention faster, for example) or a bad thing.
If you write checks before you have money in your account, you should expect checks to clear faster. You can’t take advantage of float time like you might have in the past, and you risk bouncing checks and paying overdraft fees. As things move faster, you need to be certain that you have funds available before paying by check. You can monitor your account by balancing your account or checking your available balance online regularly.
If you have a habit of bouncing checks, evaluate some type of overdraft protection program—preferably one with minimal fees. Better yet, determine why you’re coming up short on payments and take action to avoid the problem in the future.
Errors and Fixes
Mistakes happen, so it’s critical to keep an eye on your account, open your mail, and set up alerts so you don’t miss anything. When it comes to substitute checks, the good news is that you have additional rights if there’s an error related to one of these payments.
If you properly dispute a transaction, the bank must investigate and credit your account promptly if they can't settle the issue within ten days.
For maximum protection, you need to review your statements regularly and notify the bank promptly of any errors. You only have 40 days after the substitute check is presented to you or appears on your statement to dispute the transaction.
The Federal Reserve Board of Governors. "Frequently Asked Questions about Check 21." Accessed June 1, 2020.
Federal Financial Institutions Examination Council. "Check 21 - FAQs." Accessed June 1, 2020.
Federal Deposit Insurance Corporation. "Check Clearing for the 21st Century (Check 21 Act)." Accessed June 1, 2020.