hinking about the Check 21 Act, almost a year and a half after it took effect, makes me think of Y2K.

Y2K was that pesky computer bug that supposedly threatened to bring technologies to a screeching halt when clocks struck midnight, marking the first day of the year 2000. Of course, nothing so outrageous occurred. But many folks considered the threat to be serious, and plenty of consultants and technology vendors were paid handsomely for efforts to keep the Y2K threat at bay. Just as in the months and weeks leading up to Oct. 28, 2004, the effective date of Check 21, plenty of speculation occurred about how this legal change would usher in the long-awaited "checkless society" and about the problems (legal and otherwise) that would crop up as a result of check truncation.

These were topics I wrote about often, in this column and elsewhere, just as I wrote often about Y2K years ago. And just as there were no monumental technology crashes in the early months of 2000, life after the Check 21 Act has been pretty uneventful. Here we are: It's March 2006, Americans are still writing billions of checks a month, at the POS and elsewhere, and the lion's share of payments clearing through the banking system still require manual handoffs of paper.

As of year-end 2005, more than 400 financial institutions (largely community banks) were presenting checks electronically to local Federal Reserve Bank offices, according to Rich Oliver, a Senior Vice President at the Atlanta Fed and the Federal Reserve Bank System's point man on retail electronic payments.

Oliver explained during an interview at that time that, on average, more than 2 million checks a day were presented electronically to the Fed's check collection offices. Yet, at the back end, 90% of those files were used to create substitute checks for final presentment to paying banks. Private sector check image exchange networks, such as SVPCo and Endpoint Exchange, haven't done much better, since the links that are needed to support inter-network exchanges have been slow in coming.

The Fed just last month began transmitting check image files to SVPCo, the New York-based network owned by the nation's largest banks, which combined, account for about 60% of U.S. checking accounts. SVPCo explained in a statement that the Fed had been receiving check images through the network since 2005, but had only just begun sending files to SVPCo banks. In January, SVPCo was handling just under 700,000 check images a day.

Further back in the transaction chain, merchants aren't yet clamoring for the ability to truncate checks at the POS, and from all appearances, ISOs and merchant level salespeople (MLSs) aren't convinced that a good business case exists for selling POS check imaging. One reason for this, many experts agree, is that liability issues arise when substitute checks are created.

The bank that creates a check image file, which must be subsequently rendered as a substitute check, warrants that no other attempts to collect the check will be made. You can bet banks will pass along the liability to retailers capturing check images and making electronic check deposits. It might seem like a long shot, that somehow the original check, or another copy would find its way into the check collection steam, but the mere threat of liability is enough to create hesitancy, especially among retailers. Meanwhile, efforts to truncate checks and covert the payments to automated clearing house (ACH) transactions haven't fared well at the POS, although there is a heightened interest in a process known as back-office conversion (BOC), which officially becomes available for POS checks in September.

With BOC, checks accepted at the POS can be truncated in the back office prior to deposit and then cleared and settled as electronic payments via the ACH. BOC is similar to accounts receivable check conversion, a check-to-ACH conversion method which has proven popular with credit card issuers.

There's a downside to check-to-ACH conversion, however: ACH rules limit eligible checks to what are generally considered first-person consumer checks. Plus, under current rules, check writers aren't obliged to buy in to ACH conversion. That's right: They can request that their checks not be truncated.

Check 21 makes it so that any check can qualify for truncation accompanied by check image exchange. In the long run, that will be hugely beneficial to the quest to eliminate paper from the payments system. But the changes we're witnessing now are part of an evolution, not a revolution. We all need to keep this in mind.

Patti Murphy is Senior Editor of The Green Sheet and President of The Takoma Group. E-mail her at patti@greensheet.com .