Do the expedited recredit rules apply if a bank receives an image of a substitute check/IRD?

From Ken Golliher on the Check 21 page:

The statute contains provisions for "expedited recrediting" that are analogous to those in Regulation E governing electronic funds transfers. (The expedited recrediting provisions apply to consumer, not business accounts.) Substitute checks are still governed by articles 3 and 4 of the Uniform Commercial Code, they are not electronic funds transfers. Yet, the UCC is a commercial law and does not overtly favor consumers; i.e. the model version of the UCC does not contain consumer protection provisions.

Under Check 21, a consumer may make a claim within 40 days from the later of the date the statement is mailed or delivered or the date a substitute check is made available. The consumer must make a warranty claim or claim that the check was not properly charged to the consumer's account. The consumer must also allege that a resulting loss was incurred and production of the original check or a better copy is necessary to determine the claim. The bank may require that the claim be in writing.

In this circumstance, the bank has 10 business days to investigate the claim. It may take up to 45 calendar days to investigate if it recredits the consumer's account up to the amount of the check or $2,500, whichever is less (plus interest if the account is interest bearing). The paying bank's ability to respond to the consumer in any time frame is obviously dependent on the cooperation of the bank that created the substitute check, hence the requirement that reconverting banks provide specific warranties. There are limitations on this process if new accounts, repeated overdrafts or suspected fraud is involved.

This recrediting process will not apply to all checks, only those drawn on consumer accounts that have been converted to substitute checks. Other items will continue to be handled according to service standards set by the bank. If a bank incurs a loss that is attributable to the receipt of a substitute check that bank may seek indemnification from the reconverting bank.

Banks are to provide customers with disclosures which explain the qualifications of a substitute check and the fact that it is a legal equivalent of the original check for all purposes. The disclosure must also explain the consumer rights to recrediting discussed above. The notice is to be provided to existing customers no later than the effective date of the Act and new customers "when the relationship is initiated." The Federal Reserve Board of Governors is charged with developing model language for disclosures.

I understand that if you receive an IRD in paper form the expedited rules apply. But do the rules apply if a bank receives and IMAGE of a substitute check?

My understanding is yes.

Further to Mary Beth's response. The substitute check must have been presented to the consumer,however, an Expedited Recredit Claim can be made if the consumer is not in possession of the item at the time the claim is made. This provision was made at the closing minutes of the Reg. It provides for a situation where "the dog ate the substitute check".

The Expedited Recredit rules only apply to consumers and not business accounts. Is that correct?

If the Expedited Recredit Rules only applies to consumer accounts and not business account, is there anything in the act that a commercial banks must follow for receiving claims due to a loss (i.e. improperly charged to the account).

No. The Act does not protect (nor does it seek to protect) commercial accounts. The expedited recredit provisions apply to consumer accounts.

Corporate accounts will still have remedy available as they would if an original check was presented and resulted in a loss. They just don't have access to the Expedited Recredit.

In other words, the UCC continues to apply. The Check 21 consumer protections just ride on top of the UCC.