Banking Interpretations


September 28, 2004

RE:  Request for Legal Opinion regarding Check 21 and 9-m of the Banking Law

Dear [            ]:

This is in response to your letter dated August 10, 2004 addressed to Sara Kelsey, Deputy Superintendent and Counsel.  You ask for a legal opinion with regard to a New York bank's obligations after the enactment of Check Clearing for the 21st Century Act ("Check 21") in light of what you believe is a conflict with 9-m of the New York State Banking Law.  

Check 21 is federal legislation that was signed into law on October 28, 2003, and will become effective on October 28, 2004.  As described by the Federal Reserve Board, Check 21 facilitates check truncation by creating a new negotiable instrument called a substitute check, which allows banks to truncate original checks, to process check information electronically, and to deliver substitute checks to banks that would like to continue receiving paper checks.

Section 9-m of the Banking Law provides that any banking institution, except a credit union, and any other financial institution that offers consumer accounts, which can be accessed by check, negotiable order of withdrawal or other similar written instrument, must offer a consumer account on which the cancelled checks are returned to the customer with the monthly account statement.

Check 21 provides that a substitute check will be the legal equivalent of the original check for all purposes, including any provision of any Federal or State law, and for all persons if the substitute check accurately represents all of the information on the front and back of the original check as of the time the original check was truncated, and bears the legend:  "This is a legal copy of your check. You can use it the same way you would use the original check."

Therefore, since substitute checks with the proper information will be the legal equivalent of the original check, in order to comply with Section 9-m of the Banking Law, for accounts where banks provide cancelled checks to consumer customers with their monthly statements, New York banks would be required to provide consumers with the substitute checks with their monthly statements.  Therefore, when the bank receives an original check back it provides the original, and when it receives a substitute check it provides the substitute check to the consumer.  This is consistent with the Federal Reserve Board's commentary to Check 21 which states that the Check 21 Act does not alter existing arrangements under which banks agree to return paid paper checks to account holders with periodic account statements, and after the effective date of the Check 21 Act, account holders that receive paid checks with their statements may receive a mix of original checks and substitute checks.

In addition, Check 21 requires that all depository institutions that provide substitute checks to a consumer customer must provide a disclosure that describes substitute checks and substitute check rights as required by 12 CFR § 229.57.  Please note that additional information regarding Check 21, including the Federal Reserve Board's implementing regulations (Regulation CC) which contains a Model Substitute Check Policy Disclosure, can be found on the Federal Reserve Board's website at

Your statement with regard to the Department's November 8, 2001 Industry Letter regarding check imaging on checking accounts and basic banking is incorrect.   That industry letter did not permit banks to return imaged checks in order to satisfy 9-m of the Banking Law.


Sharon Cherry
Associate Attorney