The Intriguing Check 21: What it Does and Doesn't Mean?

WEST PALM BEACH, Fla. – It’s a great sound bite – “the electronic exchange of checks.” If and when this happens, it’s going to be because of the passage of Check 21, a law that encourages electronic image exchange, but does not mandate it. Check 21 caused a lot of confusion in 2004 as many credit unions were under the wrong impression that they had to be ready to send and receive check images by the law’s Oct. 28 enactment date. That of course was not the case. Credit unions are in a unique position with Check 21. They’ve been truncating for years and have imaging infrastructure already in place. And credit unions won’t face the education process banks might as far as not returning checks to members. Credit union members are used to not getting their cleared checks back, bank customers are not. The whole point of image exchange is to truncate the process earlier on and take paper out of the equation. Corporate credit union item processors and league service corporation item processors grew concerned earlier this year that credit unions would rush out and purchase imaging equipment that they didn’t need. Their fears were fueled by imaging vendors marketing to credit unions using Check 21 as their sales pitch. As a result, credit union item processors went on a PR barrage, holding everything from Webinars to town hall meetings on the realities of Check 21. As the year went on it became more and more clear that nothing would really change on Oct. 28. Credit unions are at the mercy of the very large commercial banks. Until they get up to speed on image exchange, things will stay status quo. The problem is that large banks have such extensive item processing infrastructure in place, they may not rush to move to imaging. Corporates and league service corporations did form agreements with exchange networks in preparation of image exchange. Many chose Endpoint Exchange, a national check image exchange network that gives credit unions that join access to all the other members on the exchange, including banks and S&Ls. Other credit union item processors hooked up with SVPCo, another exchange organization. SVPCo is owned by 22 of the largest banks in the U.S. Then the idea of a national credit union image exchange switch was floated by leaders of FirstCorp and Northwest Corporate. The idea, they said, was to give credit unions more economies of scale when dealing with banks. Banks could go to one entry point to get all credit union image items. A working group was formed by 28 of the CU industry’s leading item processors. It is being facilitated by U.S. Central and is currently querying banks on how they expect to work with the credit union industry in the exchange environment. FirstCorp and Northwest have formed a CUSO that is archiving their images in caves in the Kansas City area via U.S. Central. The two say this may serve as a model for other CU item processors to eventually join to develop a national CU archive. Others in the industry believe credit unions can still get the economies of scale treatment they want without combining images in an archive. They say a CUSO or some sort of alliance could be formed that the banking industry can deal with. Just recently, a new Check 21 development came to light. Some members of Congress voiced concerns about check hold time staying the same, with check clearing time being reduced by Check 21. The lawmakers were especially concerned about financial institutions holding deposit items in order to profit from the interest. “It unfairly penalizes consumers and should be eliminated from the U.S. payment system,” wrote Representatives Michael Oxley (R-Ohio), Spencer Bachus (R-Ala.), Patrick Tiberi (R-Ohio) and Melissa Hart (R-Pa.) to Fed Chairman Alan Greenspan. Despite some skepticism about when image exchange will take hold, CUs seem to be on the bleeding edge. At Southwest Corporate, one of the leaders in image exchange, volume is projected to be in the range of 200,000 to 300,000 per month by the end of December – representing more than 400 processing end points. Jody Beck, SVP of Operations for Southwest Corporate said she expects that volume to “grow very rapidly” in the next few months. She also noted that it is working with some 50 CUs that are preparing to implement branch capture in ’05. [email protected]