I have been ready tons of information about check 21 and I am a little confused about the Image check (not the IRD). This is my understanding:

1. The MICR line is read from the original check and the information from the MICR line is sent to the paying institution for processing. The image of the original check will follow.

2. If the paying bank does not accept the image/electronic check (not the IRD) then the depository or intermediary bank must create a substitute check (IRD) to the paying bank.

3. Now if #1 and #2 are correct, what is the point of doing the image/electronic check when the image is going to follow anyway?

#1. It sounds like you are mixing Electronic Cash Letters (ECL) with Image Exchange. These are two different animals. Paper checks do follow in the ECL environment but not in the Image Exchange environment. In Image Exchange the image and the MICR data are passed at the same time.

In #2 the last institution to handle the image version of the check will create the IRD (if the payee bank does not accept image files). The IRD will contain an audit trail of each institution that processed the item.

#3. By converting the item to image your institution is receiving the benefit of reduced float on the item as well as some fraud detection benefits (faster returns).

There will be two models of image exchange. The ECP (MICR) information and image will flow together or the ECP can preceed the Image. However, when the Image is sent after, the ECP data must also be sent again to ensure the appropriate items are sent.
IRDs are always created by the party who gains value from it. If a paying bank accepts images but has customers who want checks returned, the paying bank will create the IRD to fulfill the customer requirement. If a depositary gains float value by creating an IRD, they bear the cost.

Thanks for the clarification Bill. Have you heard of any vendors pushing the ECP with the image to follow? Everyone I have spoken to has been talking about the combined image/MICR data file.

I am under the impression that if you are the institution that converts the check to an image you bear the cost for the IRD if one is created downstream to complete the collection process. If you are an image bank (accepting images) creating IRDs to fulfill customer statement requirements, you would bear the cost of printing the IRD. Is that your understanding?

I was under the impression that the institution that converted the image to an IRD was responsible for it. Am I incorrect?

The institution that converts the paper check to image foots the bill (estimated at 4 cents-6 cents PLUS??)for printing an IRD downstream if one is necessary to complete the collection of the item. The reasoning is that the converting bank is the one that receives the most benefit by converting the paper check to image.

If you are the reconverting institution (from image to IRD) you are responsible for the contents of the IRD (Such as: the legend "This is a legal copy of your check...", you identify the bank that originally truncated the item, you preserved all previous reconverting bank identifications, you ensure that the IRD bears all previously applied endorsements, etc.) Warranties and indemnity start when a reconverting bank creates a substitute check and then flow with the substitute check.

However, the bank that converted the paper check to image is responsible for check quality. (ie: If someone uses gel pen to write or endorse the check and the imaged copy is not clear, or if there is a missing image, or if the check is torn/dog-eared and is missing an important "chunk",.......) Which means that the warranties and indemnity claims could be come back against the converting bank (paper to image) if an image quality is poor and it is determined that quality played a role in the loss.

To the question regarding ECP with Image to Follow. The X9.37 DSTU file format allows for both - the ECP and Image and the ECP with Image to follow. The SVPCo banks will probably use both forms. In the early part of the evening will send combined but at the deadline time (usually 11 PM - Midnight) will send the ECP so the Paying Bank can post and then send images to follow, which match the last ECP file. The Endpoint Exchange Network exchanges at the item level and it actually sends the image to the exchange server before the ECP and they are subsequently brought together at the exchange server and then forwarded to the paying bank. The WestPay exchange Network is sending both ECP and image together.