Re: Largest Overhaul Of Check Processing In 50 Years In Sight

[Alanslater]

Gentlemen --

Since the idea is idiotic, then I must be the chief idiot because I created it, brought it to the Fed and organized an industry consortium to push for it.  Don't worry, I don't take offense, I've been called an idiot and crazy by some of the best and brightest -- until they get it.

Let's set the record straight.  The concept of a substitute check (in previous lifetimes I called it an MEF-MICR Encoded Facsimile and an IRD-Image Replacement Document) began as a solution to the problem of how to reduce the cost of operating deposit taking ATMs.  Because of the availability banks must give to deposited checks, as required by law, banks must physically pick up the checks from the ATMs during the early part of the afternoon of each banking day.  The solution was to image the checks when the customer inserted them into the ATM, do a CAR of the amount of the check and compare it to the customer's input (for power encoding and proof reconcilement), perform some sexy fraud recognition analyses and transmit the image to a processing center.

Here's where it gets interesting.  Most banks require a piece of paper to perform their check processing activities.  So I suggested that the processing center either recreate a copy of the check from the digital image and MICR encoded it and send it out with the other checks or send the image.  The choice of which to receive would be up to the paying bank.  The only problem is that this is illegal.  At this time, this can only be done through bilateral agreements -- a major stumbling block to truncation since approximately 50MM agreements would be required in the US.

The concept evolved into such areas as immediate presentation of checks, shared deposit taking for other banks (without the additional risk incurred with paper checks), accepting deposits at merchant locations, replacing lockbox operations with the US Post Office (they open the letter at the local post office, image the check and payment ticket and prepare the files for presentment), overseas deposit taking of US dollar checks, etc.

The idea is a major win for consumers, banks, check processors and merchants.

Basically, the Check Collection for the 21st Century Act gives the digital image and the recreated paper check the same legal standing as the original check.  Of course, there's a mess of other stuff in the Bill also.

If you would like some more information, I do have a presentation describing the process so just let me know.  If you want to know what's happening on the legal and standards front, go to www.eccho.org.