What Are Substitute Checks?

Substitute checks are copies of checks used by banks in lieu of the original. This practice was made legal by the Check Clearing for the 21st Century Act in 2003, better known as the Check 21 Act.

Provided that the copy includes both the front and the back of the original check, banks are free to use substitute checks when obtaining payments, significantly expediting the check clearing process.

Key Takeaways

  • Substitute checks are copies of an original check which are accepted as legally valid by banks.
  • They were made legal in 2003 by the Check 21 Act, and they are now commonly used for check-clearing purposes.
  • Banks can use photos or photocopies of an original check in order to make a substitute. However, these replicas must be made by the bank itself in order to be valid.

Understanding Substitute Checks

The practice of using substitute checks in the check clearing process is known as check truncation. It allows for significant time savings because banks are no longer required to store and transmit the original physical copies of checks, which might be easily lost or damaged. Today, substituted checks created by banks are considered legally valid forms of payment.

It is important to note, however, that only banks can create substitute checks, not individuals. When a person or business creates an image of a paper check to complete a remote deposit, the bank is technically receiving that image and converting it into a substitute check using their check-cashing software platform. However, the image of the check itself is not technically considered a substitute check unless it has been accepted and processed as such by the bank.

Similarly, there is a difference between substitute checks and so-called converted checks. The latter are physical checks that are used to initiate electronic payments. Whereas substitute checks are governed by legislation and by the Uniform Commercial Code (UCC), converted checks are governed by the regulations of the automated clearing house (ACH) platform.

Understandably, the acceptance of substitute checks has enabled substantial improvements to the processing time of checks throughout the banking system. One relatively minor inconvenience caused by this change, however, is that banks may no longer return physical checks to their depositors if they are requested to do so. After all, banks today may not retain physical checks on file for as long as they did before since the original check is irrelevant once a legitimate substitute check has been created. 

In some instances, this might negatively affect some customers who desire records of their original checks, such as for proof of payment or for tax purposes. On the other hand, it may be possible to obtain digital copies of these documents, which should be acceptable as proof of payment in the same manner as a physical check.

Real World Example of Substitute Checks

Emma is a frequent user of mobile and online banking. In the past, she had to physically deliver her checks to the bank so that they could be cashed. Today, however, she can deposit her checks electronically using her mobile phone.

When doing so, Emma uses the bank's mobile application to scan the front and back of her check. The application then verifies the authenticity of the check and stores the image on the bank's servers. This digital copy becomes a substitute copy for the original check, meaning that Emma is able to deposit her funds without ever presenting the original check to her bank.

Nevertheless, Emma's bank encourages her to retain her physical copy of the check for a certain number of business days in case there is any issue with the substitute copy created by the bank. In most cases, however, the check clearing process occurs smoothly and the funds are made available to her more quickly than it would be possible prior to the passage of the Check 21 Act.