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You may have heard about a new U.S. law the Check 21 Act in effect October 28, 2004 giving legal status to paper reproductions of cheques. RBC clients who have U.S. Dollar accounts and who issue cheques that are negotiated in the U.S. will notice that some of their returned cheques look different. The following Questions and Answers have been prepared to provide you with additional background.
What is the Check 21 Act?
The Check 21 Act (the Check Clearing for the 21st Century Act) is a new U.S. federal law that allows for the creation of a new legal document, called the substitute check/Image Replacement Document or IRD. Beginning October 28, 2004, some of the cheques you receive in your account statement may be in the form of substitute checks/IRD.
What is a "substitute check/IRD"? What can I expect to see?
A substitute check/IRD that conforms to the Act is a legally sanctioned document, with all the rights and obligations given the original cheque. They are paper reproductions created from electronic images of original paper cheques (front and back, with all endorsements). Each substitute check/IRD also bears a legend that identifies it as a legal equivalent of the original cheque.
Why was this new law introduced?
The changes brought on by the Check 21 Act are designed to improve the cheque clearing process. The result should be faster, more efficient clearing and posting of cheque payments. It will modernize the U.S. cheque clearing system, reducing risks and costs associated with the physical transportation of cheques and shorten the time it normally takes to clear cheques between financial institutions.
Why does a U.S. federal law affect a Canadian financial institution?
The new law requires that a party must accept a substitute check that meets the Act's requirements. Therefore, if you have a U.S. Dollar account, for personal or business reasons, and write cheques that are deposited and negotiated in the U.S., a U.S. financial institution may create a substitute check/IRD in place of the original cheque. As a result, you may receive the substitute check/IRD in your statement in place of the original cheque.
Does this mean I won't be getting back my cancelled cheques?
In cases where the financial institution has converted its process to producing substitute checks/IRDs, you will not receive the original. However, the IRD will have the same legal status as your original cheque written by you.
What are the implications for my account management practices?
The U.S. Dollar cheques that you write which are deposited and negotiated in the U.S. may clear sooner. This does not change the way you order U.S. cheques or how they are printed.
Will Canada be introducing a similar law for the Canadian cheque clearing system?
An industry-wide project to modernize the Canadian cheque clearing system and enhance its efficiency through image technology is also in development, led by the Canadian Payments Association. Implementation is targeted for late 2006. An overview of the initiative is provided in "Cheque Imaging in Canada: A Change Whose Time Has Come".
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