AUTHORITIES looking for substitute for paper bank checks
Monday, May 21st 2001, 12:00 am
By: News On 6
WASHINGTON (AP) _ Federal banking authorities are studying ways for banks to reduce the costly practice of shipping canceled checks around the country, Federal Reserve Vice Chairman Roger W. Ferguson Jr. said Monday.
Ferguson said officials at the Fed and other banking agencies were working on a proposed ``Check Truncation Act'' that would give banks greater leeway to substitute electronic copies of checks for actual checks.
Ferguson said the proposed law, which is still being drafted and has not yet been submitted to Congress, would boost the use of electronic payment methods by ``empowering banks to truncate checks when cost savings or other benefits can be identified.''
Such a provision could mean that people who write checks to make payments to firms some distance from their local bank could end up receiving an electronic copy rather than the original check in their monthly bank statement.
Ferguson said the key change from the current system would be a new federal requirement that banks treat the substitute electronic checks as the equivalent of the original checks.
Currently, banks have the option of setting up such systems with other banks but the complicated procedures for doing so have limited the use of electronic check substitutes, Ferguson said.
Ferguson gave no estimate of the possible cost savings if banks were not required to process checks by transporting the originals around the country. He said that one problem with coming up with an estimate was that banking authorities don't really know how many checks are actually processed each year.
He said that one ``rough guess'' put the number of checks written each year at around 70 billion with a value of well over $80 trillion.
``But the truth is that we really do no know how many checks are written in the United States each year,'' Ferguson said.
He said the Fed has recently begun a number of surveys to fill in the knowledge gaps about how checks are processed.
The proposed legislation would not be submitted to Congress until regulators had considered public comments to make sure that the concerns of both banks and consumers were taken into account, Ferguson said.