New act speeds up check-processing system

By Anuradha Raghunathan
The Dallas Morning News

Check writers, beware — the end of the float is on the horizon.

With the spread of debit cards and other electronic transactions, money has been moving more speedily out of checking accounts. But consumers still usually can rely on an old-fashioned paper check taking two or three days to clear their bank.

But with President Bush's signing Tuesday of the Check Clearing for the 21st Century Act, the float is expected to sink in the coming years.

The law, passed recently by the House and the Senate, is aimed at speeding up the nation's gargantuan check-processing system. Effective a year from now, electronic images of checks — or printouts of images — will be considered as good as the actual paper checks themselves. So banks, which spend $6 billion to $8 billion a year processing 41 billion checks, will no longer have to transport paper checks from one bank to another. Instead, they'll be able to transmit the images.

"Consumers are not going to see immediate changes, but this is the wave of the future," said Dennis Simmons, president and chief executive of the Southwestern Automated Clearing House Association, which represents the electronic payments industry. "In the next 12 to 18 months, you will see some significant moves toward zero-day float."

Also, even fewer banks are expected to return consumers' canceled checks. Many banks have moved in this direction, but now it will become legally acceptable for all banks to provide consumers just online images or printouts of their checks.

Experts, however, say the effect of the law will be long-term and possibly uneven. For one thing, the law comes with a year's delay to give banks enough time to beef up their back-office systems to handle the changes. But even then, banks that don't want to participate can continue to do things the traditional way.

"A lot of this is reliant on the conversion and the adoption rate of the banks," said Craig Vaream, a vice president at J.P. Morgan Chase. "It's hard to say what the benefits will be."

But all of the nation's big banks have bought into the idea. Bank One, Bank of America, J.P. Morgan Chase & Co. and Washington Mutual, for example, are enhancing their check-imaging operations. Consumers can expect their banks to give them advance warning of the change.

The Check 21 Act was spurred by the events of Sept. 11, 2001, when the nation's transportation system came to a halt, grounding the movement of checks. Industry experts decided that they needed a system that would not be vulnerable to transportation interruptions.