Substitute Check

A substitute check is an electronic copy of a paper check. It is considered a legal copy of the original check, and can exist in any form in which the original check does. Typically, substitute checks are often slightly larger and include pictures of the original check's front and back as well as text declaring that the check is a legal copy. Banks use substitute checks in order to obtain payment from other banks, and expedite the check-clearing process.

The Check Clearing for the 21st Century Act, or Check 21 Act, was enacted on Oct. 28, 2003. The law allows for anyone to practice check truncation, a practice by which electronic copies of checks, or substitute checks, can be made to eliminate the need to continue handling the physical document in order to complete the check-clearing process.

Only banks can create substitute checks. When a person or business creates images of a paper check in order to complete a remote deposit, the bank receiving the deposit may use those images to create a substitute check. However, an image or photocopy of a check alone cannot be used as a substitute check.

Nor is a converted check a substitute check. A converted check is a written check that is used to initiate an electronic payment. Converted checks are governed by ACH regulations, while substitute checks are governed by federal and state check laws, the Uniform Commercial Code (UCC) and regulations specific to the use of checks.

As a result of the Check 21 Act, banks have started to create electronic copies of paper checks to cut costs and speed up check processing times. Since banks started using substitute checks, voided paper checks may no longer be returned to customers for record-keeping purposes. In some instances, consumers can ask their banks to provide substitute checks for proof of purchase purposes (such as for tax-related purposes).

Most banks make electronic copies of voided substitute checks available to customers as part of their online banking services. If necessary, customers can print off these electronic copies, along with all the information that accompanies them, to use as proof of payment; this process creates an image replacement document, or IRD. Because a substitute check is considered the legal equivalent of the paper check it was created to replace, a copy of the voided substitute check can be accepted as proof of payment in the same manner as a voided paper check.