Substitute Check – Definition

Cite this article as:"Substitute Check – Definition," in The Business Professor, updated June 9, 2019, last accessed May 31, 2020,


Substitute Check Definition

A Substitute Check is a digital reproduction of an original paper check. In the U.S. the Substitute Check is a negotiable payment instrument and is considered to be legal check in lieu of the paper check. Financial institutions and payment processing centers use the Substitute Checks for a transaction between themselves to speed up the check circulation process. These are generally slightly larger than the original paper checks with images of the front and back side of the check. It includes text that indicated the check is a legal copy.

A Little More on What is a Substitute Check

On October 28, 2003, the United States Congress passed the Check Clearing for the 21st Century Act or Check 21 Act, that allows the recipient bank of a paper check to make an electronic version of the original paper check and the digital copy of the check is known as Substitute Check. The Check 21 Act was implemented in October 2004 in the United States.  The process of creating the digital version of an original check and removing the physical document from the processing flow is known as check truncation. In this process the recipient bank does not have to return the physical document (paper check), instead, they send an email with an image of both sides of the check to the bank it is drawn upon.

Only the banks are allowed to create a Substitute Check. Individual customers and other legal entities can use a computer scanner or mobile phone to capture images of a check and deposit them electronically. This is known as a remote deposit. The banks then use those images to create an alternative check. Individually verified images and copies of a check is not considered to be a legal replacement.

One must remember, that a simple photocopy or image of a check does not create a Substitute Check. These cannot be used for moving money from one bank to another. A ‘converted’ check is not a Substitute Check. The payments of converted checks are governed by Automated Clearing House Payments rules and not by the Check 21 Act.

There are certain legal requirements which are to be followed while creating a Substitute Checks. If a Substitute Check doesn’t adhere to these requirements, the check will not be considered as a legitimate equivalent of the original check. Those requirements are:

(i)    A Substitute Check must include all the details that are depicted on both sides of the original paper check and that information must be accurately represented in the copy. This information includes full names of the payor and payee, courtesy and legal amounts, encoding information, endorsements, and others.

(ii)    The MICR line of the original check must be accurately represented in the Substitute Check.

(iii)    “This is a LEGAL COPY of your check. You can use it the same way you would use the original check”- this must be clearly written on a Substitute Check

(iv)    A warranty must be provided for a Substitute Check by the financial institution at the time of truncation.

(v)    ASC X9.100-140 standards must be followed while capturing the check images and MCR data.

Use of Substitute Check saves money as well as expedites the process of transaction and audit. As the substitute checks are considered as legal checks, these are subject to existing check laws and regulation. Substitute Checks are also bound by the Expedited Funds Availability Act, Article 3 (Negotiable Instruments), and Article 4 (Bank Deposits and Collections) of the Uniform Commercial Code (UCC). Several other state and federal laws are also implemented on the transaction with Substitute Checks. If any state law, federal law or provisions of the Uniform Commercial Code contradicts the Check Clearing for the 21st Century Act, the latter takes precedence.

References for Substitute Check

Academic Research for Substitute Check

Check Please-The Check 21 Act and Its Impact on Check Fraud Claims, Weber, M. J., & McDonnell, D. E. (2004). Tort Trial & Ins. Prac. LJ, 40, 941.

The Check Clearing for the 21st Century Act-A Wrong Turn in the Road to Improvement of the US Payments System, Felsenfeld, C., & Bilali, G. (2006). Neb. L. Rev., 85, 52.

The joint production of confidence: Endogenous regulation and nineteenth century commercial-bank clearinghouses, Gorton, G., & Mullineaux, D. J. (1987). Journal of Money, Credit and Banking, 19(4), 457-468.

Cutting checks: challenges and choices in B2B e-payments, Cotteleer, M. J., Cotteleer, C. A., & Prochnow, A. (2007). Communications of the ACM, 50(6), 56-61.

Trends in the efficiency of federal reserve check processing operations, Wheelock, D. C., & Wilson, P. (2004). Federal Reserve Bank of St. Louis Review, 86(September/October 2004).

Phishing and money mules, Florêncio, D., & Herley, C. (2010, December).In Information Forensics and Security (WIFS), 2010 IEEE International Workshop on (pp. 1-5). IEEE.

The role of private sector payment rules and a proposed approach for evaluating future changes to payments law, Ballen, R. G., & Fox, T. A. (2008). Chi.-Kent L. Rev., 83, 937.

Banking in the 21st Century, Santomero, A. M. (2004). Business Review, (Q3), 1-4.

The check is dead! Long live the check! A check 21 update, Bauer, P. W., & Gerdes, G. R. (2009). Federal Reserve Bank of Cleveland, Economic Commentary, September, 29.

Comparing legal and alternative institutions in finance and commerce, Allen, F., & Qian, J. (2009).

Banking in the United States, DeYoung, R. (2010). The Oxford handbook of banking, 777-806.

Implementing the Check 21 Act: Potential risks facing banks, Rice, T. (2005). J. Payment Sys. L., 1, 464.

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