check 21. . .

Your guide to the Check Clearing For The 21st Century Act and how it affects you.

Perhaps you've heard or read about Check 21, and are wondering what it's all about. For many, it may mean more bounced checks, as float essentially disappears. Check 21 refers to a new law, Check Clearing for the 21 st Century Act that's effective October 28, 2004, and creates a new negotiable instrument called a "substitute check."

A substitute check is a paper reproduction of the original check. It's created from an image of the original (both front and back) and contains all of the processing information. It's the legal equivalent of the original check for all purposes.

Why the need for a substitute? Up until now, paper checks have been processed by physically transporting them around the country between financial institutions. It could take days for a check to make its way through the system, a time period known as "float." However, following the terrorist attacks of September 11, 2001, with the shutdown of air traffic the check processing system was disrupted. Checks sat in plastic bins in airports, and the float period was extended from days to weeks.

Check 21 allows checks to be converted to an electronic image that is transmitted between financial institutions, a process called truncation. Many credit unions, including Valley Credit Union, have used truncation for years. But now when every financial institution uses substitute checks, float will be virtually eliminated, with checks clearing in hours, instead of days. So you will need to make sure you have enough money in your account to cover your checks when you write them.

You still can get a copy of a cleared check, but it actually may be the substitute check.

Below is some additional information regarding Check 21 and how it may affect you.

What does a substitute check look like?

A substitute check is a paper reproduction of an original check (share draft). It is approximately 3.75 x 8.5 and prints doublesided. It contains the MICR line and includes an image of the front and back of the original paper check. An example of a substitute check (front and back) is as follows:

After the effective date, will checks clear faster than they do today?

The Check 21 Act provisions are expected to speed up the time it takes for financial institutions to process checks. Over time, checks should clear faster.

Can I refuse to accept substitute checks?

No. The Check 21 Act requires everyone to accept a properly prepared substitute check as if it were the original check. This includes a retailer or service provider accepting a copy of a substitute check as proof of payment.

What if the substitute check is not an accurate image of the check I wrote?

The Check 21 Act provides consumers with specific rights and obligates financial institutions to take certain actions with regard to substitute checks. If you believe a substitute check is not accurate, contact us immediately. We will investigate the matter and recredit your account as necessary.

How much time do I have to contact you and make a substitute check claim?

Unless there are extenuating circumstances, you have 40 calendar days after the date (1) your affected account statement was delivered to you or (2) the substitute check was made available to you, whichever is later.

As a business account holder, do I have the same rights as a consumer when making a substitute check claim?

No. The recredit provisions of the Check 21 Act only apply to claims made by consumers.

What changes might I see with regard to my share draft account because of the Check 21 Act?

If you request a copy of one of your cleared share drafts, you may receive a copy of a substitute check.

If I deposit a check that is written to me and it is returned to me unpaid, will I get the original check back?

Possibly. You will receive either the original check or a substitute check. If you receive a substitute check, it can be used the same way as the original check.

What if I have other questions about the Check 21 Act?

If you have additional questions, please contact a Member Service Representative at 408-955-1300, 510-653-0395 or 800-995-0287 during business hours.

Federal Reserve Bank Consumer Awareness Disclosure

IMPORTANT INFORMATION ABOUT
YOUR CHECKING ACCOUNT

Substitute Checks and Your Rights

What is a substitute check ?

To make check processing faster, federal law permits banks and credit unions to replace original checks with a slightly reduced image of the front and bank of the original check. The front of a 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.

Some or all of the checks that you receive back from us may be substitute checks. This notice describes rights you have when you receive substitute checks from us. The rights in this notice do not apply to original checks or to electronic debits to your account. However, you have rights under other law with respect to those transactions.

What are my rights regarding substitute checks?

In certain cases, federal law provides a special procedure that allows you to request a refund for losses you suffer if a substitute check is posted to your account (for example, if you think that we withdrew the wrong amount from your account or that we withdrew money from your account more than once for the same check). The losses you may attempt to recover under this procedure may include the amount that was withdrawn from your account and fees that were charged as a result of the withdrawal (for example, bounced check fees).

The amount of your refund under this procedure is limited to the amount of your loss or the amount of the substitute check, whichever is less. You also are entitled to interest on the amount of your refund if your account is an interest-bearing account. If your loss exceeds the amount of the substitute check, you may be able to recover additional amounts under other law.

If you use this procedure, you may receive up to $2,500.00of your refund (plus interest if your account earns interest) within 10 business days after we received your claim and the remainder of your refund (plus interest if your account earns interest) not later than 45calendar days after we received your claim.

We may reverse the refund (including any interest on the refund) if we later are able to demonstrate that the substitute check was correctly posted to your account.

How do I make a claim for a refund?

If you believe that you have suffered a loss relating to a substitute check that you received and that was posted to your account, please contact us by mail at 670 Lincoln Avenue, San Jose, CA 95126, by phone at 408-955-1300 or on the web at www.valleycu.org. You must contact us within 40 calendar days of the date that we mailed (or otherwise delivered by a means to which you agreed) the substitute check in question or the account statement showing that the substitute check was posted to your account, whichever is later. We will extend this time period if you were not able to make a timely claim because of extraordinary circumstances.

Your claim must include -

• A description of why you have suffered a loss (for example, you think the amount withdrawn was incorrect);
  
• An estimate of the amount of your loss;
  
• An explanation of why the substitute check you received is insufficient to confirm that you suffered a loss; and
  
• A copy of the substitute check and the following information to help us identify the substitute check: The check number, the name of the person to whom you wrote the check, the amount of the check and the date the check was written.