CUNA Reps Hail Check Truncation in Electronic Age; Credit Unions the Shining Example of Successful Truncation

WASHINGTON-CUNA unloaded both barrels in support of check truncation legislation, sending one representative to a Senate Banking Committee hearing and another to the House Financial Services Financial Institutions Subcommittee hearing recently. Chartway Federal Credit Union Director of Operations Celia Woodham recommended to members of the House Financial Institutions Subcommittee last week that they report out favorably H.R. 1474, The Check Clearing for the 21st Century Act. The legislation “allows electronic check processing to be used by a number of institutions without requiring them to engage in the costly process of negotiating several individual agreements,” she said in her remarks. National Institutes of Health Federal Credit Union President and CEO Lindsay Alexander testified on behalf of CUNA the week before touting credit unions’ ability to truncate checks as a fast, efficient processing tool. “Credit unions have found that check truncation, under existing check law, allows credit unions to serve credit unions members well. Check truncation has allowed credit unions to provide members with lower fees and still provide members with outstanding service,” according to Alexander. She pointed out that corporate credit unions processed 1.1 billion checks in 2001 and only 480,000 requests were received for originals. In nearly all instances the corporate was able to create a high enough quality image to suit the member’s purposes. “In my 14 years at National Institutes of Health Federal Credit Union, we have never had a member that has complained about not getting an original,” Alexander said. As introduced by Representative Melissa Hart (R-Pa.), H.R. 1474-or Check 21, as it is called-allows a financial institution to send electronic checks without prior agreements and the receiving institution could still request a paper copy. Currently, financial institutions cannot engage in check truncation without an agreement with the receiving institution. Check truncation helps the consumer by processing checks faster and, therefore, making the funds available faster, or informing the consumer quicker when a check is not good, Woodham said. Not only should check truncation improve efficiency, but it also should increase security and privacy. “The accessibility of paper checks to transporters of checks and personnel make them much more of a privacy risk than electronic files, which often have greater security features such as password and encryption enhancements,” she reasoned. “Therefore, the increase in electronic processing should not negatively impact consumers.” Alexander noted in her testimony that 64% of credit unions (representing 96.1% of credit union members) offer checking accounts and 91% of those truncate checks. Just over 7% of credit unions offering checking accounts return images of the checks with members’ statements. But most credit unions do not truncate all their checks, she said, such as ones drawn on other financial institutions that members deposit or use to make loan payments at the credit union. Senate Banking Committee Chairman Richard Shelby (R-Ala.) recognized credit unions’ experience with check truncation during his opening remarks for the committee’s hearing. “The end result is considerable savings in time and money through the elimination of an outdated law,” he said. “We can learn from the experience of the credit union industry which has used a truncation process for many years.” NAFCU also submitted written testimony for the record in support of the legislation with some minor tweaking. “Undoubtedly, this effort would revolutionize the way share drafts are processed by increasing the ability of financial institutions to convert paper checks into electronic transactions earlier in the truncating process. Cost savings can then be passed down to members of credit unions and other financial systems by eliminating the handling, sorting and physical transport of checks in the payment system,” according to NAFCU. The association pointed out that NCUA began requiring truncation in 1977, but dropped the requirement in 1982. However, most credit unions continue to truncate because of the benefits to their members and cost savings, NAFCU wrote. According to NAFCU statistics, approximately 42.5 billion checks are processed in the U.S. each year with 4.7 billion of those coming from credit union share draft accounts. The bill has a bipartisan group of 17 cosponsors in the House, including Financial Services Committee Chairman Mike Oxley (R-Ohio), who is known for his ability to maneuver legislation he supports. -