A substitute check (also called an Image Replacement Document or IRD)^[1] is a negotiable instrument that is a digital reproduction of an original paper check. As a negotiable payment instrument in the United States, a substitute check maintains the status of a "legal check" in lieu of the original paper check, as authorized by the Check Clearing for the 21st Century Act (the Check 21 Act). Instead of presenting the original paper checks, financial institutions and payment-processing centers transmit data from substitute checks electronically through the settlement process, through the United States Federal Reserve System,^[2] or by clearing the deposits on the basis of private agreements between member financial institutions. Financial institutions that process substitute checks in accordance with such private agreements are typically members of a clearinghouse that operates under the Uniform Commercial Code (UCC).^[3]

A substitute check is recognized as a legal check as long as the instrument meets requirements, which include the faithful reproduction of the paper check and warranty of the instrument by the "reconverting bank"—the financial institution that created the substitute check or the first financial institution that transferred or presented it during the check-clearing process.^[4] Substitute checks are also subject to the UCC, federal and state check laws, and consumer-rights regulations.^[5] Although a substitute check is subject to the UCC and state and federal check laws, the Check 21 Act takes precedence over these other laws and regulations for this instrument.^[6]

The Accredited Standards Committee X9 (ASC X9), a standards development committee accredited by the American National Standards Institute (ANSI), maintains, promotes, and supports technical financial standards for procedures, delivery, and transactions for financial products and services, including Image Replacement Documents and other financial instruments.^[7] American National Standard (ANS) X9.100-140 covers specifications for the content, processing, and quality of Image Replacement Documents specifically.^[8]

Certain standards that exist for paper checks also apply to Image Replacement Documents. These standards include ANS X9.100-160-2 (Magnetic Ink Printing (MICR)), Part 2, External Processing Code (EPC) Field Use);^[9] ANS X9.100-181 (Specifications for TIFF Image Format for Image Exchange); and ANS X9.100-187 (Specifications for Electronic Exchange of Check and Image Data - Domestic) that also cover electronic deposits using mobile phones.^[8][10][11]

Under the Check 21 Act, all U.S. paper checks and check-like instruments are eligible for truncation and reconversion to substitute checks, including consumer (personal) checks, commercial (business) checks, money orders, traveler's checks, cash advance or convenience checks tied to credit and charge card accounts, controlled disbursement checks, and payable through drafts, in addition to government warrants and U.S. Treasury checks.^[12][1][13] The Check 21 Act permits any financial institution (such as a commercial bank or credit union) that participates in the check collection process to remove or truncate the original paper check from the forward collection or return process and reconvert the paper check to a substitute check. The removal of the original paper check from either process does not require an existing agreement beforehand between the bank of first deposit (BOFD) and the "paying bank."^[5][12]

The elimination of the paper check from the clearing process saves the banking and treasury management industries handling, sorting, transporting, storing, safeguarding, and mailing costs. After the financial institution truncates the original paper check and reconverts it to a substitute check, the financial institution can then store or archive the paper check, return the paper check to its own customer according to state law, or later destroy the paper check.

A properly prepared substitute check is considered the legal equivalent of the original paper check that can be accepted for payment or proof of payment in the same manner as the original check. Every substitute check must adhere to the following requirements before it can be recognized as the legal equivalent of the original check:

1. The substitute check must accurately represent all information depicted on the front and back of the original paper check at the time the financial institution removes or truncates the check from the process, including the names of the payor and payee, the courtesy and legal amounts, endorsements, and encoding information, among other details.
2. The substitute check must accurately represent the MICR line of the original check.
3. The substitute check must bear the legend "This is a LEGAL COPY of your check. You can use it the same way you would use the original check."
4. The financial institution or processor must provide a warranty for the substitute check. This warranty must be provided by the financial institution when it removes or truncates the original paper check from the forward collection or return process and reconverts the paper check to a substitute check.
5. The financial institution or processor that truncated the original check must follow ASC X9.100-140 standards in the capture of check images and MICR data when it produces the substitute check.^[2]

Image statements that include a series of pictures or images of original paper checks and/or substitute checks, photocopies of the original checks, and images of checks posted online are not recognized as the legal equivalents of substitute checks.^[14] Unlike a substitute check, a photocopy of a check cannot be presented through the check clearing process for settlement because the photocopy does not adhere strictly to the requirements for substitute checks under the Check 21 Act.^[5]

Since substitute checks are considered legal checks, substitute checks are subject to existing check laws and regulations. Other laws and regulations that govern substitute checks in the United States include the Expedited Funds Availability Act, Article 3 (Negotiable Instruments),^[15] and Article 4 (Bank Deposits and Collections)^[16] of the Uniform Commercial Code (UCC), along with a variety of state and federal regulatory laws. U.S. federal laws that also affect substitute checks include Federal Reserve regulations that provide for recrediting the amount of the substitute check in the case of fraud and duplicate payments caused by settlement of both the substitute check and the original check used for creating the substitute check.^[2][5][12] If any state law, federal law, or provision of the UCC conflicts with the Check 21 Act, the Check 21 Act takes precedence to the extent of the inconsistencies among those laws and provisions.^[6]

• Check (cheque) truncation
• Remote deposit