With New Legislation, the Check may no Longer be in the Mail

On Oct. 28, 2004, the Check Clearing Act for the 21st Century takes effect, updating what some banking professionals describe as an antiquated check system that relies on the physical transportation of paper checks between banks. The new law, known as Check 21 or the Check Truncation Act, will change the way that banks process checks, making it legal to transmit electronic versions of paper money over the Internet. And it may expedite fulfillment of check payments, said Scott Duncan, deputy communications director for the House Committee on Financial Services in Washington, D.C.

Corporate customers will be able to purchase digital imaging software, which will enable companies to send check images to banks instead of making physical deposits, but this may only be useful for larger veterinary clients that can afford the investment, said Betty Reiss, spokesperson for Bank of America.

H.R. 1474 was introduced after the Sept. 11, 2001, terrorist attacks. “Flights were grounded for days, [so] the checking system in this country was essentially strangled,” Duncan said.

Traditionally, as required by law, paper checks are flown from one bank to another and may be returned to customers with monthly statements. That system can take days for checks to clear. The new law is expected to shorten the timeframe considerably.

“At a time when everything is wireless, we are dependent on this paper system,” Duncan said. “[Check 21] is only [bringing banking] into the 21st Century.”

Check 21 will allow banks to process original checks, an image of the original check or a digital image of the check, according to the Treasury Department. It is not expected to instantly alter the banking process, and some say that companies may not see a material change in the way business is done, Reiss said. Some Bank of America clients already utilize an online service that allows them to track checks online, which will become easier for all banking customers with the Check 21 law, and an increasing number of clients no longer request the return of original checks. One of the only ways that customers will see the effects of Check 21 is when they receive check substitutes in the mail.

“This is a major change for the banking industry, but it’s more of an evolutionary change than something that happens overnight after the law goes into effect,” Reiss said.

NEWStat Legislation & regulation