Check 21 at California Bank & Trust
Posted October 1, 2004

Important Information About Check 21 For Our Customers

The Check Clearing for the 21st Century Act, commonly known as Check 21, is a new federal law that becomes effective on October 28, 2004. To better inform our customers of the impact of this law, California Bank & Trust has prepared the following list of common questions and answers:

What does Check 21 do?

In brief, Check 21 will allow banks to replace an original paper check with a "substitute check" that is made from a digital image of the original check. Banks and customers will be required to accept substitute checks in place of original checks. Substitute checks will have the legal equivalency of originals.

Why was Check 21 created?

Check 21 was created to reduce the time, risks and costs associated with processing and transporting paper checks. Traditionally, banks have been using planes, trucks, and other means to physically transport checks to the drawer's bank for payment. This created situations where check processing could be delayed by uncontrollable events such as adverse weather conditions or natural disasters. Check 21 improves the efficiency of the nation's payment system by minimizing the physical transportation of checks between banks.

How does Check 21 help?

Check 21 allows original paper checks to be replaced with substitute checks created from digital image files. Thus, banks will no longer have to physically send the original checks between each other for collection, but rather can electronically transmit digital images of checks. Removing original paper checks from the collection process reduces the risk of delayed processing.

What is a substitute check?

A substitute check is a paper reproduction made from the digital image of an original check. The substitute check contains an image of the front and back of the original check along with bank processing information. The substitute check must conform to banking industry standards and will include all the information contained on the original check. The substitute check is the legal equivalent of the original check

What does a substitute check look like?

The size of the substitute check will be similar to the size of a business check; it will contain the same information as the original check and it will show the front and back of the check, including endorsements. It will contain the following wording on the left side of the document: "This is a legal copy of your check. You can use it the same way you would use the original check." The appearance of each substitute check may vary slightly depending on the type of equipment used in processing.

When will I encounter substitute checks under Check 21?

After October 28, 2004, you can expect the following:

• If you receive cancelled checks or check images with your CB&T statement, you may receive a combination of your original cancelled checks and some substitute checks.
• If you have check safekeeping and your cancelled checks are not returned, images of substitute checks may be stored in place of the original checks. When you ask for a copy of your check, you may receive a copy of a substitute check.
• If a check you have deposited is returned unpaid, you will receive either the original or a substitute check depending on how it was processed and returned to California Bank & Trust.

How will the Check 21 law affect me (or my business)?

Generally, it will have no impact on the way a customer issues or uses checks. However, if you receive cancelled checks or a check you deposited to your account is returned unpaid, you may receive a substitute check in lieu of the original.

Are all checks eligible to become substitute checks?

All checks are eligible for conversion to a substitute check, including, but not limited to, consumer checks, money orders and travelers checks. The only checks that cannot be converted to a substitute check are foreign checks.

Will my cancelled checks continue to be returned with statements?

Customers with accounts who currently have their cancelled checks returned with their statements will continue to receive cancelled checks--but some or all of these items may be a substitute check.

What happens to my original check?

Since there are no requirements governing the retention of original checks, they may be destroyed once digital images of the original checks have been made. Any bank in the processing cycle may do this, not necessarily CB&T.

Can I 'opt out' of Check 21?

No. Once Check 21 legislation goes into effect in October 2004, it will require everyone (banks, customers, businesses, government agencies, etc.) to accept a properly prepared substitute check as if it were the original check. All checks except foreign checks are eligible to become a substitute check. There will be no "opt out" exceptions. This is a federal mandate, not a rule imposed by California Bank & Trust.

What other impact will Check 21 have on me?

As more banks make the investments to capitalize on the opportunities presented by Check 21, checks written by customers may clear faster. Checks you deposit may also clear faster, and notification of checks you deposited that are returned unpaid may occur more quickly as well.

Before Check 21, some customers wrote checks against funds that they had not yet deposited. These customers counted on the "float time,” or the time it takes for a check to actually clear an account after it has been written for payment. With Check 21, that float time will be reduced with more efficient check processing, and writing checks against insufficient funds will result in costly overdraft fees. Customers should not write checks unless the funds to cover those items are in their account.

Quicker notification of unpaid returned checks may help businesses reduce losses. The sooner you are aware of a bad check the quicker you can start your collection process and avoid accepting additional bad checks from the same maker.

Solutions That Help You

You will need to consider how receiving substitute checks will impact you or your business. California Bank & Trust has a variety of products and services that can help you manage the effects of Check 21.

Consumer Customers

Money Reserve

DirectNET^SM Internet Banking

• Retrieve real time information on your current balances and transactions (not including ATM transactions)
• Pay bills online
• View online account and bill pay activity
• Transfer between your CB&T accounts

VISA Check Card

• Eliminates the need for writing a check or carrying cash
• Can be used at any location that accepts VISA Check Cards
• No POS fees
• Automatically deducts funds from your CB&T checking account
• Transactions can be monitored with DirectNET Internet Banking

Direct Business Internet Banking

• Retrieve previous day closing and current available balances
• Pay bills online
• View online account and bill pay activity
• Transfer between your CB&T accounts

VISA Business Check Card

• Eliminates the need for writing a check or carrying cash
• Can be used at any location that accepts VISA Check Cards
• No POS fees
• Automatically deducts funds from your CB&T business checking account
• Transactions can be monitored with Direct Business Internet Banking

Cash Management

California Bank & Trust has been offering image products to our business customers with cash management services for many years:

We're Here To Help

Efficiencies made possible by Check 21 will allow California Bank & Trust to continue supporting the evolution of the U.S. payments system. We will continue to invest in image capabilities that provide new features, products and services for our customers.

As you review the effect of Check 21 on you or your business, please use our expertise to help you. We understand the changes occurring in the payment-processing environment and will support your needs.

To learn more about Check 21 or the above products and services, please contact your California Bank & Trust Representative.