Check 21: It Won't Eliminate the Paper; It Will Eliminate the “Push”

By Deb North

An important U.S. transportation system is expected to change on October 28, 2004: 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 the Check 21 Act 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 is no longer 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, 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, and then process it just as though it were the original. The new system emerging from the Check 21 Act 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, as well as eliminates delays in check delivery due to bad weather or other interruptions in service, such as mailing or air traffic delays which have become more common over the past two years.

More checks still being produced today
There is a growing perception among consumers and check printers alike that the physical document is going to disappear under the Check 21 legislation. That simply is not 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, Mo., trade manufacturer produces more than $10 million in secure documents annually, representing roughly one-third of its business; a product niche that 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," says Wandling, commenting on Check 21.

The enactment of Check 21 does not negatively impact the production of paper checks. Wandling’s research indicates that, despite the decline in the use of personal checks, the U.S. check market continues to grow, albeit leveling off at one billion checks per year. This information supports the viability of the paper product for some years to come.

A contrary report, Clarks’ Bank Deposits and Payments Monthly says Federal Reserve studies point to a recent decline in the number of paper checks processed in this country. The key word here is "processed," which strongly suggests that activities like online bill presentment and direct deposit are creating less actual paper check pushing. Another activity taking place at some large retailers is accepting the consumer’s check as payment, then returning it at the point of purchase and asking the consumer to sign a debit receipt. The transaction is a process change whereby the more efficient electronic payment overrides paper payment, but the check is still intact in its original form.

Design checks for the process change
Wandling says he is not 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 their check product. Some consumer and business checks will need to be redesigned or reformatted for scannability for the banks to accept and further digitize those checks according to the new legislation. Distributors should be informing customers of this process change now so that if re-design is required, the check product will be ready for the implementation of Check 21 on October 28.

BACK TO TOP

Delays can create consequences

Failure to update systems may have the following consequences:

The UCC urges all companies that have not yet achieved 2005 Sunrise compliance to begin system planning, testing, and update/conversion activities.

A special thanks to the Uniform Code Council for permission to reprint this article.

BACK TO TOP

You can search the DMIA Source Hotline Database through this state-of-the-art program featuring a comprehensive database of more than 30,000 suppliers organized by product category and region. With a few clicks, you can sort the capabilities of these manufacturing sources, identify your top five, and automatically send quotation requests via e-mail. It’s a fast, comprehensive and efficient way to develop and manage product quotations.

Built upon DMIA’s Source Hotline Database, this web-based service will save you valuable time and allow you to search for sources 24-hours a day, 7 days a week!

Start using this great member benefit today and see how it can help you make more sales, faster!

Just go to www.dmia.org and click on "Source Hotline Database" to enter the Online Sourcing Service. There is a tutorial that will help guide you through the system and then you'll be off and running!


The first time you use the service, you’ll need to enter your Login Name and a special password. (This is different from your regular DMIA password.)

If you need your login and password, call the hotline at 800-333-2828. Enjoy this new service from DMIA and remember that we are always working to bring you new products and services that really make a difference for your business!

BACK TO TOP