Check 21 Proponents Say E-Checks Can't Be Grounded

When last year's terrorist attacks caused the government to shut down the nation's air space, one result was a temporary backlog of paper checks. Under the proposed "Check Clearing for the 21st Century Act," banks could truncate the original checks and replace them with either paper or digital substitutes, thus mitigating a potential weakness in the payments system.

The Act, also known as "Check 21," has received broad support from the information technology and banking communities, albeit with reservations over the consumer protection components of the bill.

For banks, Check 21 has the potential to significantly reduce spending on day-to-day expenditures. "One major bank spends $25 million annually on courier service while another spends $20 million opening envelopes," said Lee Schram, vice president, payment and imaging solutions, NCR Corporation, Dayton, Ohio, in his testimony to the House.

But air couriers are quick to point out potential shortcomings in an over-reliance on electronic systems. AirNet Systems, based in Columbus, Ohio, estimates its market share at 65 to 70 percent of all checks flown point-to-point throughout the U.S.

After September 11, AirNet took extraordinary measures on the ground to keep check traffic moving. "On the evening of the 12th of September, 2001, AirNet helped move over 500,000 pounds of checks (five times the normal amount transported on a typical night) and moved another 275,000 pounds later that weekend," said Joel Biggerstaff, CEO of AirNet systems, in his statement.

Citing the threat of cyber-terrorism, AirNet hopes to retain its role in the payments system. "The electronic transmission of check information, side-by-side with air transportation, represents a fundamental principle of safe and sound banking: redundancy," said Biggerstaff. "Should events in the future ever cause the closing of NAS national air space again, the air transportation of checks can be guaranteed by the simple designation of 'lifeguard status' to these critical shipments."

Regardless, the increasing availability of electronic alternatives to physical checks points the way towards a diminished role for air couriers in the payments system. "By enabling the banking industry to reduce its reliance on physical transportation, the proposed act would also reduce the risk that checks may be lost or delayed in transit," said Roger W. Ferguson, Jr., vice chairman, Board of Governors of the Federal Reserve System.

Indeed, digital connections can easily go where planes and other regularly-scheduled transportation networks fear to tread. "In South Dakota we are constantly challenged to meet our federally mandated funds availability deadlines due to adverse weather conditions and limited access to air courier services," said Curtis L. Hage, chairman and CEO, Home Federal Bank, Sioux Falls, S.D., and chairman of America's Community Bankers, a Washington, D.C.-based trade organization, in his testimony. "For example, one Home Federal branch provides financial services for a remote part of the state that is nearly five hours away via ground transportation to a central processing facility."

"...We frequently end up having barely enough time to process items within federal funds availability time limits," said Hage.

On Sept. 25, 2002, the House Subcommittee on Financial Institutions and Consumer Credit held hearings on "Check 21." Transcripts are available at the House Web site: https://financialservices.house.gov/hearings.asp?formmode=detail&hearing=168