2. On October 28, 2003 Congress unanimously passed & President Bush signed into law the Check Clearing for the 21 st Century Act or Check 21, to become effective on October 28, 2004. This is the first major change in check processing since 1957.On October 28, 2003 Congress unanimously passed & President Bush signed into law the Check Clearing for the 21 st Century Act or Check 21, to become effective on October 28, 2004. This is the first major change in check processing since 1957. Allows creation of Substitute Check (IRD) covered under new standard ANSI X9.9Allows creation of Substitute Check (IRD) covered under new standard ANSI X9.9 ALL Checks are eligible for replacement with a substitute check.ALL Checks are eligible for replacement with a substitute check. ALL Substitute checks must be accepted by all parties, no exceptions.ALL Substitute checks must be accepted by all parties, no exceptions.

3. 1.Contains an image of the front & back of the original check & the image is truncated. Is a paper reproduction of the original check & is the legal equivalent of original check for all purposes ANSI X9.90 DSTU Front Back

4. 2.The MICR line conforms to industry standards for substitute checks. Is a paper reproduction of the original check & is the legal equivalent of original check for all purposes ANSI X9.90 DSTU Front Back

5. 3.The physical specifications conform to industry standards for substitute checks. Is a paper reproduction of the original check & is the legal equivalent of original check for all purposes ANSI X9.90 DSTU Front Back

6. 4.The substitute check is suitable for automated bank processing. Is a paper reproduction of the original check & is the legal equivalent of original check for all purposes ANSI X9.90 DSTU Front Back

7. 5.Bears all legends, endorsements & identifies party creating it. Is a paper reproduction of the original check & is the legal equivalent of original check for all purposes ANSI X9.90 DSTU Front Back

8. 5 indicates a Returned Item - NSF5 indicates a Returned Item - NSF 4 indicates a Substitute Check4 indicates a Substitute Check External Processing Code (EPC) – Position 44 on MICR line ANSI X9.90 DSTU Front Back

9. Transit & Return Clearing – Banks can image an item, transmit that image to a distant location where a substitute check will be printed close to the bank that ultimately needs to pay the item, thus speeding the collection process. Returned items can be processed in the same manner thus reducing risk.

10. Intermediary Paying Bank BOF D Traditional Paper Collection Check Intermediary Paying Bank BOF D Sub Ck Substitute Check Collection Image Check

11. Remote Depositing – ATMRemote Depositing – ATM Image Exchange through agreementsImage Exchange through agreements Lockbox – ARCLockbox – ARC Point of Purchase – POP/ACH DebitPoint of Purchase – POP/ACH Debit Cash ConcentrationCash Concentration

12. Bank that creates the substitute check warrants that the substitute check meets all requirements for legal equivalencyBank that creates the substitute check warrants that the substitute check meets all requirements for legal equivalency Warrants that it is not a double debitWarrants that it is not a double debit The bank that creates the substitute check, and each subsequent bank, indemnifies all parties in the collection or return process if the loss is due to the receipt of a substitute check instead of the original check.The bank that creates the substitute check, and each subsequent bank, indemnifies all parties in the collection or return process if the loss is due to the receipt of a substitute check instead of the original check. Comparative Negligence – If the loss results from negligence or failure to act in good faith, then indemnification shall be reduced in proportion to the amount of negligence or bad faithComparative Negligence – If the loss results from negligence or failure to act in good faith, then indemnification shall be reduced in proportion to the amount of negligence or bad faith Security Features destroyed with the creation of substitute checkSecurity Features destroyed with the creation of substitute check

13. PAYING BANK RECONVERTING BANK Sub Ck CLAIM 40 DAYS $$$ 10 DAYS Consumer Statement Paying bank must provide consumer with original check, copy of original check or recredit within 10 days of claim up to $2,500 per checkPaying bank must provide consumer with original check, copy of original check or recredit within 10 days of claim up to $2,500 per check Amounts > $2,500 must be recredited to consumer within 45 daysAmounts > $2,500 must be recredited to consumer within 45 days Paying bank must make claim to reconverting bank within 120 days of of transaction that gave rise to claimPaying bank must make claim to reconverting bank within 120 days of of transaction that gave rise to claim Reconverting bank must provide recredit, original check or copy within 10 days of paying bank claimReconverting bank must provide recredit, original check or copy within 10 days of paying bank claim 120 DAYS Check, Copy or $$$

14. ANSI X9.18Paper Specification of ChecksANSI X9.18Paper Specification of Checks ANSI X9.13Specifications for placement of MICRANSI X9.13Specifications for placement of MICR ANSI X9.27Print & Testing of MICRANSI X9.27Print & Testing of MICR ANSI X9.53Specifications for Check EndorsementsANSI X9.53Specifications for Check Endorsements DTSU X9.37Electronic Exchange of Check Image Data (Truncation)DTSU X9.37Electronic Exchange of Check Image Data (Truncation) ANSI 9.7Next slide – check background and Convenience Amount Field (CAR)ANSI 9.7Next slide – check background and Convenience Amount Field (CAR) The following ANSI standards will apply to Check 21 under ANSI 9.9

15. ANSI X9.7Check background and Convenience Amount Field (CAR) The Courtesy Amount, Date, Payee, Signature & Legal Amount Line must meet the minimum reflectance standards to truncate original checks by the banking industry. Courtesy AmountReflectance > 60%Max. contrast PCS 60%Max. contrast PCS < 0.3 Legal Amount Line Date, Payee, & SignatureReflectance > 40%Paxel Count 40%Paxel Count < 12 PaxelIs a group of pixels in binary images 0.10 x.010. Paxel count is the number of continuous pixels. File SizeAlthough not a requirement of the Check 21 Act, it is suggested that the file size of the original business check be between 25 to 40 kb for truncation. Personal checks 8 -12kb.File SizeAlthough not a requirement of the Check 21 Act, it is suggested that the file size of the original business check be between 25 to 40 kb for truncation. Personal checks 8 -12kb. Critical areas of check - Testing