An important U.S. transportation system is expected to change on Oct. 28. The Check 21 Act, enacted by Congress and signed by President Bush last October, will take the check collection process high-tech, eliminating the paper pushing that passes through the U.S. mail stream.
The crux of Check 21 is that it creates a new, negotiable "substitute check" that allows traditional paper checks to be truncated at any point in the presentment process. The source document still exists, but the physical transportation of the original isn't necessary.
Truncation means the paper check is cut short from completing the forward collection path to the payer bank. The original check is held in place at the bank of first deposit or any subsequent clearing bank. Presentment occurs by transmission of an electronic image, rendered from the original item, or by transmission of the MICR-encoded information. The "substitute" contains the same information on the front and back as the original check and has the same legal status, according to the new law. The substitute must also contain these words: "This is a legal copy of your check. You can use it the same way you would use the original check."
Under this legislation, a bank can truncate a check, make an image of it, use the image to create a substitute piece of paper, then process it as though it were the original. The new system emerging from Check 21 will provide greater efficiency over the traditional way of transporting paper checks from bank to bank.
The ability to move checks electronically greatly reduces check-clearing costs and eliminates delays in check delivery due to bad weather or other interruptions in service, such as mailing or air-traffic delays.
Check Numbers Still Healthy
A growing perception among consumers and check printers is that the physical document is going to disappear because of Check 21. That isn't the case, says Dave Wandling, CDC, vice president of marketing at The Flesh Company, maker of value-added continuous forms, unit sets and laser cut sheets. The St. Louis-based manufacturer produces more than $10 million in secure documents annually, representing approximately one-third of its business. The product niche has remained fairly static in its growth, with longer runs of cut sheet products dominating the mix. "The paper check will remain a viable instrument; only the process will change," Wandling says.
The enactment of Check 21 shouldn't negatively impact the production of paper checks. The majority of Americans (68%) still pay their bills every month by writing checks and mailing them, despite having many newer technology-based payment options available, according to a recent national survey by the Check Payment Systems Association (CPSA), Washington, D.C. One reason consumers trust checks is their high level of security. According to the survey, the majority of consumers (62 percent) believe that checks have more security features than credit cards and debit cards. Two out of three consumers feel more at ease writing checks for a purchase than using a credit or debit card online.
Some studies point to a recent decline in the number of paper checks processed in the United States. The key word is "processed," which strongly suggests that activities such as online bill presentment and direct deposit are creating less paper-check pushing. Another activity taking place at some large retailers is accepting customers' checks as payment, then returning them at the point of purchase and asking customers to sign debit receipts. The transaction is a process change whereby the more efficient electronic payment overrides paper payment, but checks are still intact in their original form.
Designing Checks for Change
Wandling says he isn't sure how much Check 21 will impact the forms manufacturing sector. The opportunity lies with the manufacturer or distributor who may be helping a customer design its checks. Some consumer and business checks will need to be redesigned or reformatted for scannability, so banks can accept and further digitize them according to the new legislation. Distributors should inform customers of this process change now, so if a client's checks must be redesigned, they'll be ready before Check 21 takes effect Oct. 28.
--Deb North
The enactment of The Check 21 Act in October shouldn't negatively impact the production of paper checks such as this one produced by The Flesh Company, a manufacturer based in St. Louis. The majority of Americans (68%) still pay their bills every month by writing checks and mailing them, according to a recent national survey by the Check Payment Systems Association, Washington, D.C. Courtesy of The Flesh Company, based in St. Louis
