I am showing my weak side here.
The president just signed a bill that will eventually end up allowing truncation. Right now we have customers that write a check for thier utility bill, for example, and never get it back. Why is this not truncation?

My customer wants to know who gave them the right to keep the check? I would like to give them and answer.

Thank you for your help!

If the utility company is truncating their customer's checks they are probably using the ARC (accounts receivable) ACH application to clear the checks. Notice equals permission according to the Rules. One requirement is that the customer has to be notified that this will happen. It is somewhere on the statement. At present, only individual checks are truncated this way. If the customer doesn't want his/her check truncated, they can pay by credit card, money order etc. - some form of a non-personal check.ARC is described on page OG168 of the Rules. The information for notification is on OG169.

I don't know much about Check 21 (yet) but I see the difference being that it will happen to basically everyone. The ARC application applies only to checks mailed to a lockbox or delivered to a drop box.

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Why is this not truncation?

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Truncation is when the check stops moving before it gets back to the drawer. Both the ARC and the imaged check allowed by Check 21 are examples of truncation.

There isn't anything that can be added to Prarie Gardener's explanation of a paper check that is converted to an ARC electronic funds transfer (EFT). However, please underscore the implication that only consumer checks are eligible for conversion. The merchant/payee truncates the check. As noted, the payee must give a notice to the consumer, but the consumer's agreement is not necessary. (An amendment to the ACH rules which allow the consumer an "opt-out" is being considered.) The ARC transaction is governed by NACHA rules and Regulation E. In combination, they require that the date, payee name, the check serial number and check amount appear on the consumer's statement.

Check 21 allows conversion of the paper check into an electronic image. (It also allows that electronic image to be reconverted back into a paper document or substitute check.) The bank of first deposit or any subsequent bank in the clearing system may truncate the check and create the image.

Any check, consumer, business or government can be converted to an image without any notice to the person who issued the check. Nevertheless, the check is not converted to an EFT; non U.S. government checks are still governed by state law, articles 3 & 4 of the UCC.

Banks traditionally returned the orginals of the checks they pay, but many have begun to return only images in the consumer's statement. In the future, if an item has been imaged under Check 21, the paying bank may send the customer the image or a substitute paper check which was created from the image. Alternatively, under the model language of 4-406, the bank may simply provide enough information to identify the item; i.e. item number, amount and date of payment and not send any physical rendition of the check. (Banks should review their state's version of 4-406.)

The use of ARC, POP and RCK are called check conversion and not truncation, even though they have the appearance. The following URL will give you a good explanation of the differences among ARC, POP and Check 21.
http://ecc.nacha.org/resources/c21_vs_ACH_V3_0.doc
Bill Saffici bill.saffici@fiserv.com