Check 21 Glossary
Automated Clearing House (ACH) – A nationwide electronic funds transfer system that provides for interbank clearing of electronic payments for participating financial institutions.
Bank of First Deposit (BOFD) – the bank where a customer deposits a check.
Check 21 – The Check Clearing for the 21st Century Act – legislation authorizing financial institutions to truncate checks and exchange images instead of paper checks. This law also allows for the creation of substitute checks or IRDs (Image replacement documents).
Check Conversion – The process of turning a paper check into an electronic ACH debit.
Check Image – An electronic or digital image of an original check that is created by a depositor, a bank or other participant in the check collection process. Check images can be exchanged electronically by banks, printed for customer statements, displayed on Internet banking websites and used to create substitute checks.
Check Truncation – The process by which an original paper check is removed from the payment-processing stream, archived as an image and replaced by a substitute check. The original check is usually destroyed after a short time.
Electronic Check – Refers to several types of electronic transactions that debit a checking account. An electronic check is not a substitute check.
Float – The time elapsed between the time a check is deposited in a bank and the time the bank receives the funds.
Image Capture – The act of reading or digitally recording a check or other document so it can be reproduced as an exact replication when needed. To create a substitute check a bank must first image capture it.
Image Exchange – The electronic transfer of the MICR data and the front and back of an image-captured check between financial institutions for the purpose of clearing the check.
Image Replacement Document (IRD) – Another term for substitute check. The term under Check 21 is substitute check.
MICR – (Magnetic Ink Character Recognition) Line – Numbers printed in magnetic ink near the bottom of the front of the check to facilitate automated processing. These numbers identify the bank the check is drawn on (the payment bank), the account number, the check number and other information. The position and content of the MICR line are dictated by industry standards.
Point of Purchase (POP) Conversion – When a consumer check payment is converted to ACH transactions at the point of sale. For example, a cashier receives a check, scans it through a MICR machine, creating an ACH or electronic transaction to directly debit the customer’s checking account. The cashier voids the check, asks the customer to sign an authorization, and returns the check to the customer.
Position 44 – The legislation states that substitute checks will use position 44 of the MICR line to identify an item as a substitute check. A “4” in that position labels it as a substitute check for forward presentment, a “5” designates it as a returned item in the form of a substitute check.
Reconverting Bank – The bank that creates a substitute check or if a substitute check is created by an entity other than a bank, the first bank that transfers, presents or returns that substitute check.
Substitute Check – A substitute check is a legal document, with all the rights and obligations of the original check and is about the size of a business check. It includes all information and endorsements from both the front and back of the original check . All substitute checks are required to include the following statement – This is a LEGAL COPY of your check. You can use it the same way you would use the original check. This is also known as an Image Replacement Document (IRD).