Check 21: Are We There Yet?

Opinion: As the start date nears for an act that will introduce digitized, substitute checks, are banks and their customers ready for the transition?

As we approach Oct. 28, the date that the Check Clearing for the 21st Century Act goes into effect, are banks and their customers ready for the changes it holds?

The reality is that the infrastructure for "checkless" banking isnt quite in place yet. Theres a great deal to be done on the technology—and many bilateral agreements must be made—before banks can take that step.

The act authorizes the creation of a new instrument, an IRD (image replacement document). An IRD is a substitute check that has been imaged from the original paper version presented to the clearing bank. It has the same legal status for proof of payment as an original check.

/zimages/3/28571.gifRead more here about the changes Check 21 will bring.

Until now, the law did not allow for the electronic conversion of business checks which, according to EDS, total more than 60 percent of the value of all checks written. Check 21 provides for that electronic conversion.

On the customer side, Consumers Union, which publishes Consumer Reports, has published its list of seven policies to mitigate what it considers the "adverse impacts" on consumers of Check 21.

Fear? Uncertainty? Doubt? Sounds like another day at the office.

In essence, Check 21 is another one of those favorite tools of government bodies: an unfunded mandate. Its not a bad idea, really, to encourage the banking industrys use of image technology to make the check-payment system more efficient and to lower check-processing costs. But theres no direct plan to get us from where we are today to where the government would like us to be on Oct. 28.

Implementing Check 21 will require investment in storage equipment, secure networks and a lot of software development. Who will pay for the changes?


Banks themselves will end up footing the bill, but they could reap the benefits of faster clearing of large checks. Large banks are reportedly jumping into the marketplace since they want to accelerate collection of the big checks written out of state. They also want to cut their courier costs.

Most people think of electronic banking as ATMs, credit cards and online bill-paying, but theyre totally different animals when compared with electronic images of checks. Credit card processing is well ahead of checks because those transactions are already electronic. Credit card companies have been doing this for years.

Next Page: How will courier services be affected?