To make check processing faster, many banks no longer send paper checks to other banks to receive payment. Instead, these banks exchange payment information electronically.
A federal law, known as Check 21 (effective October 28, 2004), makes it easier for banks to electronically transfer check images instead of physically transfer paper checks. Check 21 permits banks to replace original checks with "substitute checks." Substitute checks are special paper copies of the front and back of the original check. They can be processed as if they were original checks. The front of a substitute check should state: "This is a legal copy of your check. You can use it the same way you would use the original check." You can use a substitute check as proof of payment just as you would use an original check.
If your canceled checks are returned with your regular account statement or if you request copies of canceled checks, you may receive a mix of original checks and substitute checks.
Under state and federal law, you are protected against errors in your account, whether you receive canceled checks (original checks, substitute checks, or both) with your account statement, an account statement showing images of the checks you have written, or an account statement that simply describes your canceled checks.
If you receive a substitute check and there is a problem or error with the check that causes you to lose money, Check 21 provides a special procedure that permits you to ask for a refund (called an "expedited recredit"). This special procedure applies to substitute checks only.
Source: Federal Reserve Board
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