Businesses see little change in Check 21 era

Area bankers say the new legislation hasn’t changed the way most business is conducted in southwest Missouri.

“I don’t think it’s having a big impact on businesses,” said Michael Homeyer, senior vice president at Bank of America in Springfield.

For now, business owners aren’t required to change their procedures in order to comply with Check 21 when accepting checks from customers. According to area bankers, the new law does not allow retailers to verify customers’ funds at the point of sale.

“All that Check 21 really means at this point is the bank has to accept the substitute check in lieu of the original check, and it has all the legal ramifications that an original check does,” said Kent Chambers, supervisor of deposit operations at Guaranty Bank. “Taken a step further, that means that no bank has to do anything different at this time.”

Two nonprofit consumer groups, Consumers Union and Consumer Federation of America, have warned consumers that Check 21 technology will clear checks much faster than before and that there might be fewer canceled checks. (See “Consumers Union offers Check 21 tips” in SBJ Nov. 8.)

It’s business as usual for many area retailers. “I’ve proceeded as normal. I’ve not dealt with it,” said Marge Farmer, business manager at The Market in Brentwood Center. “It’s not affected me in any way that I can tell.”

Chambers said that Guaranty Bank and its merchant clients still process checks the same way they did prior to Oct. 28.

“My guess is that we just won’t see much implementation from the local banks for six months to a year,” Chambers said. “It was very much like December 31, 1999. (Y2K) was a huge nonevent.”

Homeyer agreed. “Obviously, with the deadline of October 28, 2004, banks had to have the technology to accept images of checks, but that didn’t require banks to actually accept checks and convert those to images. I don’t know of any banks that are doing that right now,” he said. “We are hearing that it might take two to five years before the check processing system as we know it today and related float (times) will change dramatically.”

Technology

While banks are not required to create substitute checks and transmit them to other banks under Check 21, local banks are prepared to accept them electronically from banks that are using their systems to transmit the substitute checks.

“We do have the technological capabilities,” Chambers said. “We pretty much, like everybody else up until early summer, felt as though there wasn’t going to be any start-up period, that we were going to have to be able to do this in order to be competitive.”

Bank of America, Homeyer said, is ready to accept electronically submitted substitute checks, but doesn’t anticipate being able to transmit substitute checks to participating banks until the second quarter of 2005. “Until all banks do that, there’s really not going to be a big impact to float or really to the whole process,” he said.

In order to create substitute checks, banks – and their business customers who choose to do so – would be required to purchase small scanners. Checks would be scanned to create the electronic substitute checks, taking the paper check out of circulation. The substitute check would then be transmitted to the originating bank.

The cost of these scanners is still unknown, these bankers say.

“The product is in beta tests right now and we expect to roll it out in the first quarter of 2005,” Homeyer said.

Double duty

While all banks are required to accept electronic substitute checks, they are not all required to create and transmit them, a situation that some feel may create more work for banking institutions.

“What will happen is that the Fed is going to make available a list of banks that will accept electronic images and those that will not, and for a long time … we’ll end up having to do things both ways,” Chambers said. “Even when we do begin to submit images, we’ll have to send part of the files up as electronic and if a check is headed to a rural bank that hasn’t upgraded equipment, we’ll send that check out as paper. It’s going to be a real interesting metamorphosis.”

Chambers anticipates banks might need more help to process checks the old-fashioned way and the electronic way. “We will probably have to engage the services of other vendors or other providers of service. I can’t see that we would add people, but I could see where we would contract perhaps some of our (check) clearing,” he said.