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Friday, December 29, 2023

Check 21: A blockbuster story

People born around the turn of the century may not realize this, but there was a time when checks were really popular—at one point in the 1990s, it was estimated Americans were writing about 40 billion checks a year.

All of those paper items had to be deposited by hand and shuttled between clearing banks. There was no remote deposit capture, nor mobile deposit. The check system, a payment system dominated by paper throughout much of the 20th century, needed a major technology overhaul.

That all began one fateful day in September 2001, when terrorist attacks shut down U.S. air traffic, including planes used to shuttle checks between various banks and organizations in the collection stream. At least that's where the popular narrative pegs the birth of the Check Clearing for the 21st Century Act (Check 21), which was signed into law in October 2003 and led to the eventual elimination of paper from the check processing stream.

But as David Walker and Phyllis Meyerson explain in their just released book, Check21: A blockbuster story, the transportation gridlock around 9/11, which left paper checks to pile up in FI's back shops, spurred the Federal Reserve to take the unusual step of drafting legislation that became the Check 21 Act. (The Fed had never before proposed legislation.)

But the transition from paper to electronic check clearing had been underway already. "The Fed and the banking system had been working on the legislation for almost two years when the Towers fell," the authors wrote. What 9/11 did was to speed up the timeline for change. Start to finish, it took just two years to draft and get legislation through Congress. It passed both houses unanimously—are remarkable feat.

Check clearing and 9/11

The transition from paper to electronic checks evolved over 40 years, beginning in the late 1960s and early 1970s with the creation of the ACH as an electronic payment replacement for checks, and check truncation initiatives, Meyerson and Walker noted. "Beginning in October 2004, Check 21 hurdled the barriers to check truncation and greatly accelerated the transition from paper to electronic checks, completing the transition in just over six years by mid-2011," they wrote.

Check 21: a blockbuster story explains the evolution of paper to electronic checks from the perspective of two people who played key roles in that evolution. Walker and Meyerson were bankers turned consultants who would go on to shepherd the Electronic Check Clearing House Organization (ECCHO).

ECCHO was launched in 1990 by a group of the largest check clearing banks at the time; it has since been absorbed by The Clearing House, which is owned by many of those same banks. ECCHO was a precursor to Check 21—establishing rules around the electronic exchange of check information between financial institutions.

The book is peppered with anecdotes. For example, it opens with a recounting of the impact 9/11 had on bankers and others who had flown to Ft. Lauderdale, Fla., for an electronic check conference. (Yes, there actually were conferences those days focused on checks.)

It describes what it's like to work with lobbyists and find seating at congressional hearings. "One of the interesting lessons learned about congressional hearings is the practice of paid line sitters," they wrote. "Congressional work schedules made it even more remarkable that Check 21 passed so quickly."

And the book gives props to Fed Vice Chairman Roger W. Ferguson Jr. and Louise L. Roseman, the Fed's director of reserve bank operations and payment systems, for their work drafting the legislation and implementing regulations, and to many others for their work on the necessary technologies and processes to implement the transition to electronic check clearing.

Buy book, donate to charity

Check 21: A blockbuster story, was released to coincide with the 20th anniversary of passage of the Check 21 Act. It is a serious story told with a bit of humor, self deprecation, and some education on the inner workings of banking, payments and Congress. The book can be downloaded as an ebook or a PDF file from Tiller Endeavors (www.tillerendeavors.com). There is no charge for the book. In lieu of payment the authors request donations to a charity of the reader's choice. end of article

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