Tool 4: Communicating About Check 21

CHECK 21 Communications Resource

Here’s a sample speech you may want to use to help familiarize local community groups with the Check 21 Act.

Changes in Checks

Ladies and Gentlemen, thank you so much for this chance to talk about a big change in the banking industry—one that will affect the way you do business with banks.

I’m referring to a new law called the Check Clearing for the 21st Century Act—or Check 21. Some of you may already be familiar with it. For those who are not, let me give you some background—and tell you what you can expect from it. Because it will affect the way your bank statements look, what they will contain—and even how you keep records of your financial transactions.

What the Law Authorizes

Check 21 came about after several years of discussions among the Federal Reserve, banks, and consumer groups—and of course, the U.S. Congress. President Bush signed Check 21 into law on October 28, 2003, and it will go into effect on October 28 of this year.

Check 21 does something very simple—but the implications are extremely powerful. The new law creates what’s called a “substitute check” that has the same legal standing as the original check. Just what is a substitute check? It’s a printed, paper document that will carry the original check’s front and back image, plus other information identifying it as a legal substitute.

So what’s the big deal about this substitute check? Well, today, checks are physically transported across town or across the country before they can be cleared. As you all know, this drawn-out process delays payment. It can also put an unwelcome hold on your ability to access your money, since clearing and funds availability can take up to five days. I am sure there are times when we all have felt that those five days were an eternity.

Because of this new law, your bank will be able to scan your paper check and capture its image electronically. It can then send this image at lightning speed through the clearing system. At the other end of the electronic process, a substitute check can be printed, if necessary.

This means that you’ll be able to enjoy expedited deposit processing no matter where you transact your business. Even at ATMs and remote bank branches.

Plus, if you ever need a paper check to prove you made a payment, the electronic information from your original check can be turned into the substitute check. And you can use that in exactly the same way as you use original checks today. Keep in mind that images of paid checks that many customers receive today (that are not technically substitute checks) are generally accepted as proof of payment, including by the IRS.

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So a simple change becomes the catalyst for more efficient processing and cheaper overhead costs. You no longer need planes, trains, and automobiles to clear checks. And it’s accomplished without ever changing when and where people use checks.

What will these substitute checks look like? They will be bigger than your usual personal check—although they are the same size as an average business check. Which means that those of you who keep your canceled checks in shoeboxes until it’s tax time may have to find another storage place.

A substitute check must meet special standards and include the same type of magnetic ink character recognition coding, also called MICR coding, that you now have on your checks. And it will contain all the information that appears on the checks you get returned with your statement.

By October 28, 2004, every bank will be required to accept substitute checks, just as they currently accept paper checks. If you receive your canceled checks or electronic images of your canceled checks with your account statement, you may be seeing substitute checks as well after that date.

Other Ways to View Paid Check Images (only use this section if it applies to your bank)

Suppose you don’t want the clutter of paid checks or the storage problems? Well, you will have a number of alternatives when you want to see the faces of your cancelled checks.

One option is to go online at your bank’s Web site, where you’ll probably find a link that will let you click and gaze at those check images all you want.

Of course, you’ll be able to copy them electronically or even print them out if you need a hard copy of the check front. In fact, a number of banks already offer this service to customers. We know from experience that customers like having this view-and-print option, they use it—and they consider it a convenience.

A Lower Fraud Rate

Even better, Check 21 may significantly help reduce check fraud, because quick detection is the key to lowering check fraud losses. When you consider that check fraud attempts totaled more than $4.3 billion in 2001—and the problem has only grown—you can understand what an advantage this is for you personally. Not to mention your business and mine.

Faster Error Resolution

We also expect that Check 21 will bring quicker error resolution. The new, automated processes should result in fewer clerical errors. And in cases where it seems that an error has occurred, the expedited clearing and posting will make it possible to track down and fix the problem.

Plus, under Check 21, both you and your bank customer service representative will have instant access to paid check images. Imagine—no more rooting through files for a canceled check. No more waiting while check copies are made or transaction research is completed by the bank.

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Processing Continuity—Even in Disasters

Finally, from a disaster recovery point of view, electronic imaging also ensures operational continuity. Banks can continue to process checks unaffected by extreme weather conditions or transportation constraints like those we experienced on 9-11. In fact, the challenges we encountered in processing checks after 9-11 were a big impetus to move electronic check imaging onto the fast track.

An Educational Effort

Of course, change is always difficult. And the banking industry recognizes that any change in bank processes that could affect cash flows and deposits is bound to raise concerns among our customers. That’s why, between now and October 28, 2004, banks will be making special efforts to inform everyone about Check 21.

Options Available to Banks

The first thing people need to understand is that no bank will be forced to process checks electronically. Any bank that wants to can continue to follow the traditional route and process only paper documents.

Your bank might also choose to become what we’re calling a “hybrid.” This means that it will image checks, but also provide substitute checks with MICR information to banks that have decided to stick with paper instead of imaged checks.

Of course, some banks will decide to go all out for electronic imaging. In that case, they still must give traditional banks and customers substitute checks when asked.

Changes that Customers Will See

You won’t necessarily see this going on behind the scenes. But as I mentioned at the beginning of these remarks, you will see a change in your bank statement and what you get back with that statement.

If your bank goes hybrid or all-electronic, you’re unlikely to have your original paper checks returned to you. Instead, you may receive statements with images on them.

This may seem strange at first. But remember—this is exactly what credit card companies did when they moved from sending you the actual receipts to giving you images of those sales slips. And of course, they soon had all of us accepting line item descriptions in place of those images.

As I mentioned earlier, you might also be directed to your bank’s Web site, where a link will allow you to look at your check images online.

In addition, I want to assure you that the data on your checks is backed up again and again throughout the check clearing system.

AMERICAN BANKERS ASSOCIATION 3 Check 21 Toolbox

Still Fine-tuning

Now, my industry and its regulators and consumer groups are still studying the issues of security, fraud, timeliness and record keeping as each relates to Check 21 changes. Because we want a system that will work for everybody. We’re not there yet, and we won’t be there for a while. But this is our goal and we will continue to work toward it.

My industry also recognizes that you will have many questions for us, before and after Check 21 kicks in—which, by the way, will not happen all at once, but gradually.

Down the Road, at Point of Sale

In time, the convenience of check imaging will even extend to the point of sale. As you pay at the grocery store or hardware store, a small machine at the cash register will scan the paper check. The check will immediately be converted to an electronic image and transmitted for processing. If you’re a business owner, imagine how you’ll benefit from the quicker processing and payment.

Of course, anyone who relies on the float when writing checks will have to rethink the situation.

Good for Business, Good for Individuals

So that is the background of Check 21. As I said, it’s a work in progress. But it’s one that can and will enhance the way you do business and the way you manage your business and personal finances.

And I am confident that the more you learn about what it can do for you and your business, the more excited you will become.

Thank you. You’ve been a fine audience and I appreciate your attention. Now, are there any questions?

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