A sweeping and somewhat controversial new banking law, dubbed Check 21, thats intended to speed up check processing and reduce processing costs became effective three months ago, but has caused nary a stir here yet.


Spokane-area financial institutions say thats partly because theyre still in the very early stages of implementing it.


The Check Clearing Act for the 21st Century, as the law is known formally, caused a buildup of some anxiety prior to its enactment on Oct. 28. Industry representatives predict, though, that it could be up to five years before banks, thrifts, and credit unions implement it fully.


The law allows institutions to exchange checksor share drafts, in the case of credit unionselectronically through digital imaging, negating the need to transport and process paper checks physically, as traditionally has been done.


Additionally, it establishes substitute checks, made from digital copies of the original checks, as legal equivalents of the originals, and requires financial institutions to accept them as such.


Advocacy groups have voiced concerns that the law will put consumers at risk for more bounced checks and the fees they can bring by sharply reducing float time, between when a check is written and when the bank pays it.


Those concerns dont appear to have materialized yet, due possibly to the gradual phase-in of the new law, but banking representatives here downplay such concerns, anyway, and contend that the impact of the new law on their customers is more likely to be positive than negative.


It definitely has a lot of advantages for businesses, because theyll be able to access their collected payments more quickly and better predict cash flow, says Amy McDevitt, a Boise-based spokeswoman for Wells Fargo Bank, which has 13 branches in the Spokane-Coeur dAlene area.


Businesses also will have expanded deposit options, McDevitt says. With checks they collect, for example, they can transmit the digital images electronically to their depository bank, and they can do that right from their desktop or from the point of purchase, rather than having to deposit paper checks, she says.


We started building an imaging infrastructure over 10 years ago, Were fully prepared to capture, exchange, retrieve, and store check images, and we also have the capacity to produce substitute checks nationwide, McDevitt says.


As far as sending those check images, though, she says, We will be gradually implementing that over time. To process electronically, we have to enter into agreements (with other institutions) and have made the investment in technology to exchange images electronically, and we dont know at what stage other financial institutions are in making similar preparations.


The technology investments also are expected to boost business for computer, networking, and broadband telecommunications providers.


Though it likely still is too early in the implementation process to gauge whether the speedier check processing will result in more bounced checks, McDevitt says, We really havent experienced any problems or complaints from consumers on that.


Patricia Coats, a Bank of America vice president and treasury-management sales officer here, says that large institution, which has about 20 branches in Spokane County and North Idaho, is just beginning to implement Check 21 processing provisions bankwide and may not do so here for some time.


We really believe it will be probably an 18-month time line before many banks implement what Check 21 gives us the ability to do, and as long as five years for the law to be implemented fully, due partly to administrative and coordination issues, she says.


Multiple benefits


Customers should benefit from Check 21 through quicker access to their funds, improved online access to check images, and faster fraud detection, Coats says. Banks are looking at ways to remove geographical barriers from their customers so they really dont need to visit branches, and this will help further that goal, she says.


For the bank, obviously its more efficiency and refining our processes, and that in turn we will pass on to our clients in terms of new services and better fraud protection, Coats says.


Overdrafts, she says, have always been an issue in that customers continually must make sure they have enough funds in their accounts to cover the checks they write. Check 21 really has nothing to do with overdrafts, she asserts. Theyve always been there, and theyve always been the same issue with customers maybe trying to play the float. I dont look at that as a Check 21 issue.


Gerry Neff, assistant vice president and manager of technical services for Spokanes Numerica Credit Union, thinks Check 21 will have the biggest impacts for financial institutions that serve large geographical areas.


Numerica is one of a large number of credit unions here that now have their checks processed by San Dimas, Calif.-based WesCorp, which last year acquired Spokane-based Credit Union Support Services and has offices here, in Seattle, and in Boise.


WesCorp, short for Western Corporate Federal Credit Union, claims to be Americas largest corporate credit union, with more than 1,000 member-owner credit unions located throughout the U.S.


Neff says Numerica is receiving substitute check images for processing, which the new law requires it to accept, but hasnt taken further steps yet to implement Check 21. Were kind of waiting for more information to come from the processor (WesCorp) on how best to proceed, which potentially could come later this year, he says.


Check 21 was established to reduce the time, risks, and costs associated with moving, clearing, and returning paper checks, which for many years has involved transporting the checks by means such as plane, train, or automobile. The new law was designed to create a more efficient check-processing system without changing the way consumers write checks. The rules arent mandated, though, except for the requirement that institutions be ready to accept substitute checks.


John Hall, a spokesman with the Washington, D.C.-based American Bankers Association, says, The marketplace will determine how fast Check 21 is adopted, and one of those drivers will be the amount banks pay to have their checks processed.


As the number of paper checks being transported from place to place drops, economies of scale will cause per-item costs to rise, which will be a disincentive to using the old system, he says.


For many people, the Check 21 changes may go unnoticed. An ABA poll last year found that only 36 percent of Americans still receive their original checks. Banks alone process more than 40 billion checks each year. In the first comprehensive study in decades, the Federal Reserve reported that 42.9 billion checks, valued at $38 trillion, were paid in 2001. Consumers write slightly over half of all checks, followed by businesses, at about 32 percent, Federal Reserve figures showed.


An ABA study released in December 2003 showed that checks make up 15 percent of all consumer payments at the point of sale, trailing cash, at 32 percent; debit cards, 31 percent; and credit cards, 21 percent.


The Fed accelerated earlier-initiated efforts to streamline check processing after the 9/11 terrorist attacks, when checks were stuck on grounded planes for days, bogging down U.S. commerce.


While some institutions have the imaging infrastructure already in place to implement Check 21, many do not. Financial institutions are expected to save billions of dollars in paper-check transport and processing costs, but say theyre first having to spend huge sums just to achieve broad electronic check-clearing capability.