Electronic Check Processing

A federal law that was enacted in response to the September 11, 2001 attacks, known as Check 21, makes it easier for banks to electronically transfer check images instead of physically transferring paper checks. The Check Clearing for the 21st Century Act (Check 21) is designed to foster innovation in the payments system and to enhance its efficiency by reducing some of the legal impediments to check truncation.

The law facilitates check truncation by creating a new negotiable instrument called a substitute check. Substitute checks permit banks to truncate original checks to process check information electronically and to deliver substitute checks to banks that want to continue receiving paper checks. A substitute check is the legal equivalent of the original check and includes all the information contained on the original check. The law does not require banks to accept checks in electronic form nor does it require banks to use the new authority granted by the Act to create substitute checks.

Since the Check 21 law was enacted the popularity of ECC (electronic check conversion) has increased at the point of sale. Electronic check conversion is a process in which your check is used as a source of information for the check number, your account number and the number that identifies your financial institution. The information is then used to make a one-time electronic payment from your account, an electronic fund transfer. The check itself is not the method of payment.

Perhaps now is the time to think about converting the checks you receive to ACH payments. This will provide greater safety, faster turn around and less handling. For more information on ACH and your POS please contact STCR at (607) 757-0181.