If all checks were replaced by electronic transactions, the exact cost savings would still be unknown, because estimates of the cost of using a check and the number of checks written each yearremain in dispute. Consequently, estimates of cost savings range from $1.4 billion annually fortruncation alone to $68 billion for replacing checks with electronic payments. Legislation

On October 28, 2003, President Bush signed the Check Clearing for the 21st Century Act intolaw ( P.L. 108-100 ). The act is also known as Check 21 Act. In December 2001, the Federal Reserve Board drafted the Check TruncationAct (CTA) and sent it to both the House Financial Services Committee and the Senate Committeeon Banking, Housing and Urban Affairs to be introduced in Congress. They would eliminate therequirement to physically return the original checks to the paying bank and therefore make it easierfor more banks to voluntarily adopt electronic check clearing instead of continuing to use the papercheck clearing process. The main difference between the Fed's proposal and H.R. In the 108th Congress , on April 3, 2003, the Senate held its first hearing on the Fed's CheckTruncation Act proposal that was received in December 2001. 1474 , the Check Clearing for the21st Century Act of 2003. On June 27, 2003, the full Senate passed the Check Truncation Act of 2003 ( S. 1334 ) and incorporated it in H.R. At a markup on June 18, 2003, the SenateCommittee on Banking, Housing, and Urban Affairs approved S. 1334. 1474 , which was passed by theHouse of Representatives the same day and referred it to the Senate. The CTA ismore generous in its consumer protection provisions. On October 1, 2003, House and Senate conferees reported H.R. 1474 ( Conference Report H.Rept. 108-291 ). At the same time, the paying bank receives the greatest benefit. The Check Clearing for the 21st Century Act (H.R.1474, P.L. 1474 and the Fed's Check Truncation Actproposal is that H.R. 1474 came from theConsumers Union. The views in its testimony were supported by the Consumer Federation ofAmerica, the U.S. Public Interest Research Group, and the National Consumer Law Center. TheConsumers Union argued that the Act would make it impossible for an estimated 45.8 million U.S.households who are currently getting their paper checks back to continue to do so. It states that theseconsumers would be less protected from fraud under the Act than under the existing check clearingprocess when there are disputes about errors in the check payment process. 5414 , the Consumers Union suggests changes in the proposed legislation that would significantly increase consumer protectionwhen checks are cleared electronically. In short, the Consumers Union's changes would protect consumersfrom the loss of the fraud protection provided by the right to have the original check returned tothem.
The clearing process for checks is more expensive than other methods of payment which are cleared electronically, such as credit cards and Internet banking. The main reason is that checkclearing requires banks to physically present and return checks unless they obtain legal agreementsto clear electronically. The Check Clearing for the 21st Century Act of 2003 ( P.L. 108-100 )eliminates the requirement to physically return the original checks to the paying bank. Before thebill by the same title became law, on April 3, 2003, the Senate held its first hearing on the Fed'sCheck Truncation Act (CTA) proposal that was sent to banking committees of both Houses inDecember 2001. On June 5, 2003, the House passed H.R. 1474 and referred it to theSenate Committee on Banking, Housing and Urban Affairs. On June 18, 2003, at a markup, theSenate Banking Committee approved its Check Truncation Act of 2003 ( S. 1334 ) andon June 27, 2003, the full Senate passed S. 1334 and incorporated it in H.R. 1474 . On October 1, 2003, House and Senate conferees reported H.R. 1474 (Conference Report H.Rept. 108-291 ). On October 28, 2003, President Bushsigned the Check Clearing for the 21st Century Act ( P.L. 108-100 ) into law, which is now also knownas Check 21 Act.
Estimates of cost savings from moving to electronic check clearing vary widely because estimates of the cost of using a check and the number of checks written each year remain in dispute. Consequently, estimates of cost savings range from $1.4 billion annually for truncation alone to $68billion for replacing checks with electronic payments. In testimony at the hearing of Senate andHouse banking committees in the 108th Congress, the Fed's CTA in the Senate and H.R. 1474 in the House were supported by the Federal Reserve Board, which testified that it would liketo remove some of the consumer protection provisions that were in its 2001 proposal because theywere unnecessary. The Fed argued that the regulatory costs these provisions would place on bankswould outweigh the consumer benefits. Still, the bill is supported by America's CommunityBankers, the American Bankers Association, the Consumer Bankers Association, and the FinancialServices Roundtable.
The opposition to the Check 21 Act came from the Consumers Union, supported in its testimony by the Consumer Federation of America, the U.S. Public Interest Research Group, and theNational Consumer Law Center. The Consumers Union argued that the Act would make itimpossible for an estimated 45.8 million U.S. households who are currently getting their paperchecks back to continue to do so. These consumers would be less protected from fraud under theAct than under the existing check clearing process when there are disputes about check payments.The Consumers Union's suggested changes in the proposed legislation would significantly increaseconsumer protection. At the same time, these changes would increase financial institutions' costsof voluntarily adopting check truncation. Other witnesses argued that those banks with decades ofusing truncated checks have not experienced many disputed check payments, and when they did theywere quickly resolved.
This report will be updated as legislative and financial developments warrant.