Is it "Check 21," "Check Conversion" or both?
As the technology around payments continues to move at a rapid pace it can be difficult
to stay on top of it all. Throw on top of that, understanding the terminology and
the endless use of acronyms, it can be easy to get lost in the new age of check
collections.
Check 21
What is Check 21?
Check 21 is a short-hand term for "Checking for the 21st Century Act," an Act that
makes a "substitute check" the legal equivalent of the original check or money order.
A "substitute check" is when the image of a check (front & back) is printed on a
piece of paper (the size of a check), including the MICR line (the line at the bottom
of a check that contains the bank routing number, check number and account number)
along with information as to which bank originally imaged the check and the check's
collection route, and containing a legend stating it is a legal copy of your check.
All financial institutions must accept a "substitute check."
When is a transaction a Check 21 transaction?
Prior to Check 21, if a check deposited into a California bank was written off of
a New York bank, the check would be put on a plane and flown to New York to be posted
to the New York bank account. Now, with Check 21, the California bank has the option
to image the check and send the electronic image of the check to the New York bank.
- The transaction falls under "Check 21" law if: the New York bank still requires
a check to be in paper form to post to its customers accounts, upon receipt of the
electronic image of a check the bank would print a "substitute check" and post the
check.
- The transaction is "Image Exchange" if: the New York bank can accept and
post electronic checks, upon receipt of the electronic check the bank would post
the electronic image to its customers' accounts.
"Check 21" does not require or address in any way "Image Exchange," however it has
been a catalyst to promote "Image Exchange."
Check Conversion
What is Check conversion?
Check conversion is the term used when a check is converted from a "check" to an
ACH debit. Only consumer checks under $25,000.00 are eligible for check conversion.
Types of Check Conversion
- Point of Purchase (POP). At a retailer's point of purchase, a check is determined
to be eligible for conversion, the check is scanned to pick up the account and bank
routing numbers, the check is returned to the payer, and a receipt is signed authorizing
the ACH debit.
- Accounts Receivable Conversion (ARC). Checks received at a lockbox or drop
box are determined to be eligible for conversion, scanned to pick up the account
and bank routing numbers, and then destroyed. Notice provided on the billing statement
constitutes authorization for the ACH debit.
- Internet Initiated Debits (WEB). ACH debits are authorized over the Internet.
- Telephone Initiated Debits (TEL). ACH debits are authorized over the phone.
- Back Office Conversion (BOC). Similar to POP, both a notice at the point
of purchase and a receipt containing notice language authorize the ACH debit. However,
in this case the retailer keeps the check, performing all scanning and eligibility
verification in their back office.
How can remote deposit capture address both Check 21 & Check Conversion?
INTRUST Deposit OnLine, INTRUST Bank's remote deposit capture system, creates an
opportunity to image all checks received. If all notice and authorization requirements
are met, eligible items may be converted to ACH. Any item not eligible for conversion
is deposited as an electronic image.