Preparing for Check 21 and Electronic Image Exchange

CUNA Technology Council
December 29, 2004

While Check 21 appears to be inseparably linked to the purchase of new technology, the reality is somewhat subtler. The Check 21 Act is written in a way that allows credit unions to implement it without making any investment in new technology. But Check 21 is expected to give a significant boost to electronic image exchange, creating an environment that will eventually encourage many credit unions to invest in the technology required to realize the benefits of exchanging images in place of paper.

Check 21 allows credit unions to set their own timetable for participation in electronic check image exchange. Credit unions can immediately embrace the exchange of electronic check images, searching out the necessary technology, infrastructure, and vendors as soon as possible. Or they can wait for standards and systems to evolve, doing only what’s absolutely necessary to meet Check 21’s requirements.

While credit unions can delay participating in electronic check-image exchange, they were required to be able to accept a substitute check, or image-replacement document (IRD), in place of a paper check when Check 21 took effect on October 28, 2004. They must also comply with the Check 21 Act’s requirements for educating members and create procedures to expedite recredits for members who suffer losses due to the use of IRDs.

Misperceptions abound about both Check 21 and the timetable for implementing electronic image exchange. While credit unions must be prepared to accept IRDs, they should avoid any sense of panic in the process of planning or acquiring the hardware and software required to exchange electronic check images. Instead, they should thoughtfully examine when and how they will begin to use electronic image exchange to streamline operations and achieve cost benefits.

Credit unions should also be aware of Check 21’s potential to impact the broader electronic payments landscape. The ability to create and exchange electronic images could increase consumer usage of ATM deposits and spur adoption of electronic payments, for example.

Although Check 21 will certainly boost the acceptance of electronic check images, the system required to exchange those images is still in development and standards are still evolving. To make the most of Check 21-related expenditures, credit unions should gain an understanding of what they are required to do now, consider what they may want to do next to capitalize on electronic image exchange opportunities, and weight what can wait until later as check imaging evolves along with the payments system.

This executive summary is taken from Darla Dernovsek’s new white paper entitled “Preparing for Check 21 and Electronic Image Exchange.” Find the complete report at http://www.cunatechnologycouncil.