AFP Press Release

Association for Financial Professionals Urges Legal Clarification of Substitute Checks

BETHESDA, MD – March 12, 2004 – The Association for Financial Professionals (AFP) urged the Federal Reserve Board to clarify the legal protections afforded to corporate users of substitute checks authorized by the Check 21 Act, and provide examples of their legal and operational consequences.

AFP submitted its recommendations in a letter to the Federal Reserve Board commenting on the Board's proposed rules implementing the Check Clearing for the 21st Century Act, which becomes effective on October 28, 2004. The Check 21 Act authorized a new negotiable instrument called a substitute check, which is a paper reproduction of an original check that contains an image of the front and back of the original check and is suitable for automated processing in the same manner as the original check.

Because Check 21 will bring about wide-ranging changes in check collection practices, AFP urged the Board to accept industry standards for substitute checks only if they retain the integrity of corporate cash management services, incorporate advanced fraud control techniques and require strict adherence to quality measures.

AFP's comment letter recommended the following modifications and clarifications to its proposed rules:

AFP opposes any provision in the rule that would deny legal equivalence to a substitute check requested by a company specifically to resolve a payment dispute or claim.

AFP requests that the Board explain the relationship between substitute checks and checks eligible for conversion to ACH debits in order to clarify if and when companies collecting checks are able to choose between creating substitute checks or converting them to ACH debits.

Payors who receive substitute checks should be afforded the same legal protection against fraud that they have when fraud occurs on their original checks.

AFP requests additional explanation of the term, “paper or electronic representation of a substitute check,” and examples of its use. The uses and legal rights attached to “a sufficient copy of an original check” should also be clarified.

AFP’s letter was signed by Alvin C. Rodack, CTP, chairman of AFP’s Government Relations committee and associate treasurer of The Ohio State University, and Douglas E. Downey, CTP, chairman of AFP’s Payments Advisory Group and assistant vice president of HCA Inc. The letter is available in its entirety on the Government Relations section of the AFP’s Web site at www.AFPonline.org.

The Association for Financial Professionals in Bethesda, Maryland, supports more than 14,000 individual members from a wide range of industries throughout all stages of their careers in various aspects of treasury and financial management. AFP is the preferred resource for financial professionals for continuing education, financial tools and publications, career development, certifications, research, representation to legislators and regulators, and the development of industry standards.

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