Contains an image of the front & back of the original check & the image is truncated.

2. On October 28, 2003 Congress unanimously passed & President Bush signed into law the Check Clearing for the 21st 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 X9.9 • ALL Checks are eligible for replacement with a substitute check. • ALL Substitute checks must be accepted by all parties, no exceptions.

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

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

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

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

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

8. External Processing Code (EPC) – Position 44 on MICR line • 4 indicates a Substitute Check • 5 indicates a Returned Item - NSF Front ANSI X9.90 DSTU 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. Traditional Paper Collection Check Check Check Intermediary BOFD Paying Bank Substitute Check Collection Sub Ck Check Intermediary Image BOFD Paying Bank

11. Remote Depositing – ATM • Image Exchange through agreements • Lockbox – ARC • Point of Purchase – POP/ACH Debit • Cash Concentration

12. Bank that creates the substitute check warrants that the substitute check meets all requirements for legal equivalency • Warrants 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. • 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 faith • Security Features destroyed with the creation of substitute check

13. Consumer Statement 40 DAYS 120 DAYS CLAIM CLAIM $$$ 10 DAYS 10 DAYS Check, Copy or $$$ Sub Ck PAYING BANK RECONVERTING BANK • Paying 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 days • Paying 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 claim

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

15. Critical areas of check - Testing • ANSI X9.7 Check 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 Amount Reflectance > 60% Max. contrast PCS < 0.3 • Legal Amount LineDate, Payee, &Signature Reflectance > 40% Paxel Count < 12Paxel Is a group of pixels in binary images 0.10 x .010. Paxel count is the number of continuous pixels. • File Size Although 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.