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Brave new world of banking getting closer with Check 21

A new law takes effect October 28 that could put the sinker on floating checks and represent a death knell to the process of banks returning original checks to consumers.
Mississippi bankers say they’re prepared for it.

The Check Clearing for the 21st Century Act, known as Check 21, allows banks to dispense with paper checks and instead transmit electronic images of the check through the check clearing process. If a consumer or bank anywhere along the chain insists on receiving the original paper check, the law provides use instead of a substitute check such as a laser printout of an electronic image. This law makes an image replacement document (IRD) a legal document and will greatly reduce the amount of time it takes to process transactions.
Without the float time of physically transporting a paper check, the check you give someone today is likely to clear your account today, too. So writing a check today with the intention of “covering” it tomorrow may be a thing of the past.

“For instance, if I get a check and want to collect the money as soon as possible, I can send an image of that check electronically and get the money the same day,” said Michael Croal, senior vice president and senior operations manager for Hancock Bank. “It eliminates the float time.”

He said the intent of this law is to reduce transportation costs for banks. Instead of taking two or three days to fly and truck a check to a bank, the image can be sent by e-mail and clear the account the same day.

“The costs of gasoline for couriers and mailing costs will be reduced and this will indirectly help customers,” Croal said. “The pressure to keep raising service charges will not be there.”

Because Check 21 is a federal law, states cannot enact laws to override it for the purpose of providing paper checks instead of IRDs for bank customers who may not want to use this latest technology.

Mississippi Bankers Association president Gene Walker says he thinks most banks in the state have been making the move toward using and accepting electronic images. He feels October 28 is not a drop-dead date for total electronic acceptance and that it will be done in stages.

Walker, chairman and CEO of the Bank of Forest, said, “Our bank is a fairly small community bank, but we made the move to accept images and have been doing imaging for four or five years.”

BancorpSouth senior vice president Jeff Jaggers said they are excited about the innovative opportunities that will be possible with Check 21 and that the transition will start slowly and progress over the next 18 months.

“During this time, checks will begin to clear faster,” he said. “We also expect the end result to be a more efficient process and the cost to process a payment to decrease. However, the cost of producing substitute checks will be new and will have to be factored into the total cost.”

Jaggers feels less fraud losses and later deadlines for making deposits will be direct benefits to customers, along with giving banks the opportunity to delay fee increases.

“BancorpSouth invested in imaging technology several years ago, and today over 99% of our customers are users of this technology,” he said. “The benefits range from simple, easy to read image statements, Internet access to view images of checks and delivery of statements with images via e-mail and on a CD-ROM.”

Chevis Swetman, president of The Peoples Bank of Biloxi, thinks the tragedy of September 11, 2001, expedited the passage of Check 21 as a way of lessening reliance on airplanes and that the new law was inevitable.

“Banks realized there had to be a more efficient way to handle checks,” he said. “Gee, paper checks were handled seven to 11 times in an organization.”

He says his bank branches are ready and are getting people educated to the changes.

Guaranty Bank & Trust Company of Belzoni has been totally imaged for about five years and is also ready for the new regulations. Chairman and CEO Huey Townsend said, “We haven’t had any problems with check images. We can give better customer service and research this way.”

BancorpSouth’s Jeff Jaggers said 85% of the dollars traveling through its system already clear in one day to get to the paying institution. Still, Check 21 has the potential to cut down on transportation costs and times even further.

“The cost to support physical paper does increase and the industry recognizes that check volume has been declining,” he said. “We are still years away from a checkless society because those habits are hard to change. However, consumers are making decisions toward that all on their own. It’s been growing significantly for years.”

Walker, a veteran of 30 years in the banking business, feels we are getting closer to the predicted checkless society. Mississippi College banking professor Frank Hood agrees and says students often ask him about it.

“We still write billions of dollars worth of checks per year, but speed and convenience are moving us toward a checkless society,” he said. “When we have the international system in place, we will have bounceless checks that merchants will love.”

Hood said that system will have instantaneous check clearing with money moving immediately from a customer’s account to the merchant’s account.

Contact MBJ contributing Lynn Lofton at mbj@msbusiness.com.


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