What is a '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.

BREAKING DOWN 'Substitute Check'

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.

What a Substitute Check Is and Is Not

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.

Substitute Checks as Proof of Payment

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.

  1. Check

    A check is a written, dated and signed instrument that contains ...
  2. Electronic Check Presentment - ...

    Electronic check presentment allows financial institutions to ...
  3. Regional Check Processing Center ...

    Regional Check Processing Center - RCPC - is a local Federal ...
  4. Regulation CC

    Regulation CC is a federal policy that sets certain standards ...
  5. Negative Float

    Negative float is the difference between checks written against ...
  6. Check Representment

    Check representment is a service offered by banks that resubmits ...
Related Articles
  1. Insights

    Understanding the Substitution Effect

    The substitution effect is an economic term used to describe consumer behavior relative to price or income changes.
  2. Personal Finance

    Cashier’s Check or Money Order: Which Is Better?

    Money orders and cashier’s checks can be a convenient way to pay someone or to receive money, but each has its advantages and disadvantages.
  3. Tech

    5 Useless Financial Products That Will Disappear Soon

    Bank deposit slip: what's that? Everyday tools of our financial life that went from indispensable to obsolete.
  4. Small Business

    How To Do a Background Check on Prospective Employees

    Discover why background checks can be extremely costly, tips for small businesses conducting checks on a budget and if professional checks can be avoided.
  5. Personal Finance

    The 4 Most Costly Banking Mistakes

    It's difficult to avoid bank charges, but taking the time to avoid these four costly mistakes will save you money.
  6. Personal Finance

    10 Checking Accounts the Ultra Rich Use

    These accounts – created specifically for the wealthy – come with special extras such as personal bankers, waived fees and the option of placing trades.
  7. Tech

    New Bank Account? Don't Be Without These 6 Features

    Certain banking features can make managing your finances easier, so it's important to choose carefully when opening a new checking or savings account.
  8. Investing

    Check Point's Strong Q4 Lifts Cybersecurity Stocks

    Check Point Software (NASDAQ: CHKP) surged nearly 8% on Thursday after the cybersecurity firm posted strong fourth-quarter earnings. Its revenue rose 6% annually to $486.7 million, beating estimates ...
  1. How Long Does It Take a Check to Clear?

    It usually takes two days for a check to clear, but in some cases, it may take longer. Here's why your check may be on hold. Read Answer >>
  2. Is the substitution effect negative for consumers?

    Explore whether the substitution effect is positive or negative for consumers as well as for retailers, manufacturers and ... Read Answer >>
  3. What happens when M2 money supply grows faster than the overall economy?

    Find out what happens if the total supply of money and money substitutes expands at a faster rate than the productive output ... Read Answer >>
Trading Center