Hi Kevin,
I work for a very large bank (our parent company). Next month Check21 takes effect and from that point on the banks no longer have to accept checks without MICR coding on it. The MICR coding allows for the electronic reading of the check which then can be electronically stored and reproduced in the future. Only checks with MICR coding are considered legal tender or substitute checks (IRDs). The bank does not have to accept a check that does not contain MICR coding, but most will anyway and they will issue a substitute check in its place for processing (or add their own MICR strip to it and process it manually). However, after more than a few of these are received from the same account they can be marked for rejection and even, when large amounts of checks are involved, MICR fraud. Note repetitive production of checks without MICR coding can be considered as MICR fraud which is a federal offense. Typically MICR fraud is the act of encoding erroneous routing numbers on checks, but anything in the MICR strip that interfers with the forward collection process can be considered MICR fraud which can include not using magnetic ink. If the customer cannot be found the depositary bank will be liable for any losses incurred because its customer did the encoding. It is not dependent on the host bank to honor the check which they may also refuse to do. I seriously doubt any bank would accept those losses if they can prevent it. In most cases, a separate MICR strip is added and the losses are limited to the costs of manually processing the checks. Keep in mind that for larger financial institutions that can really add up and some will identify repeat offenders.
Having said all of that keep in mind that it is up to the bank what they choose to do with checks that do not have magnetic encoding. Most will overlook it for small accounts or when it is not repetitive and some small banks will even let it go on indefinitely. With the switch to check21 next month though more and more banks will enforce the federal regulations already in place. Something to keep in mind.
Sometimes I really wish I did not work for a bank...


>Sorry, I meant I spoke to a company that provides printed checks for the bank.
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>This was just one company, and they were really pushing the list of 'pre-approved' check-writing programs.
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>Thanks...we have a series of phone conferences scheduled over the next week to get more details - so at this point, I'm trying to learn as much as I can about the things that could come up.
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>Kevin