Substitute Checks

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A substitute check is an image or copy of a paper check. With an official substitute check, the image is just as good as the paper check itself - banks can pay funds from a checking account based on the image alone as a result of the Check 21 Law.

As you might imagine, that means checks get paid faster. If you wrote the check, that's bad news because the funds will be deducted from your account more quickly (or the check will bounce, and you don't want that). If you received the check, it's good news because you'll get paid sooner.

However, not just any photo will do. To be considered a substitute check under Check 21, the image must meet certain requirements.

What’s Not a Substitute Check?

There is some confusion about what is and what is not a substitute check. A simple photocopy or image of a check is not a substitute check under Check 21 - it cannot be used to move funds from one bank to another.

A ‘converted’ check does not qualify as a substitute check. Converted checks are paper checks that get converted into electronic checks by businesses you write checks to (this 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 ACH payment rules.

Who Uses Substitute Checks?

Banks use substitute checks to collect funds from other banks. Businesses and individuals that you write checks to do not create substitute checks. Because the substitute check is created at the bank, your transaction is subject to the laws that govern traditional check activity - not electronic transactions. However, you get additional rights under Check 21 (see below).

That said, an individual or a business can indirectly create a substitute check. If you pay somebody who uses a mobile device to deposit the check, the bank might convert the image into an official substitute check.

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." You can print the image with all the accompanying information to create an Image Replacement Document (IRD)

If you have an IRD, you can use it to document payments you’ve made as if it were the actual check you used. This can help you prove that you paid certain expenses when the original canceled check is not available.

Problems Created by Substitute Checks

Like everything electronic, substitute checks make things happen faster. This can 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 bounced checks and overdraft fees. As a result, you'll need to know whether or not you really have funds available before you write a check (you can verify by balancing your account). Evaluate some type of overdraft protection program if you bounce checks regularly (but a solid budget is a better and more affordable approach).

Errors and Fixes

Mistakes happen, and you should always keep an eye on your account. The good news is that you have additional rights if there’s an error related to a substitute check.

If you properly dispute a transaction, the bank must investigate and credit your account promptly if they can't settle the issue within 10 days.

As always, 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.